**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM** **10-Q**





**þ**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**For
      the quarterly period ended September 30, 2008**


or




** ̈**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the transition period from**  **to**




**Commission
      file number: 001-02292**





**NYFIX,
      INC.**


**(Exact
      name of registrant as specified in its charter)**




**Delaware**
              **(State
                or other jurisdiction of**
              **incorporation
                or organization)**
            **06-1344888**
              **(I.R.S.
                Employer**
              **Identification
                Number)****100
                Wall Street**
              **New
                York, New York**
              **(Address
                of principal executive offices)**
            **10005**
              **(Zip
                code)**





**(646)
      525-3000**


**(Registrant’s
      telephone number, including area code)**





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.  Yes  x  No   ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer”, “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.




Large
                accelerated Filer ̈
            Accelerated
                filerx
            Non-accelerated
                filer ̈
            Smaller
                reporting company ̈




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o No x




There
      were 38,055,934 shares of our common stock outstanding on November 5,
      2008.










**TABLE
      OF CONTENTS**


**Page****PART
                  I - FINANCIAL INFORMATION****Item
                  1.**
              **Unaudited
                  Financial Statements**Condensed
                  Consolidated Balance Sheets as of September 30, 2008 and December
                  31,
                  2007
              
              4Condensed
                  Consolidated Statements of Operations for the Three and Nine Months
                  Ended
                  September 30, 2008 and 2007
              
              5Condensed
                  Consolidated Statement of Changes in Stockholders’ Equity and
                  Comprehensive Loss for the Nine Months Ended September 30,
                  2008
              
              6Condensed
                  Consolidated Statements of Cash Flows for the Nine Months Ended
                  September
                  30, 2008 and 2007
              
              7Notes
                  to Condensed Consolidated Financial Statements
              
              8**Item
                  2.**
              **Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations**
              
              19**Item
                  3.**
              **Quantitative
                  and Qualitative Disclosures About Market Risk**
              
              32**Item
                  4.**
              **Controls
                  and Procedures**
              
              32**PART
                  II - OTHER INFORMATION****Item
                  1.**
              **Legal
                  Proceedings**
              
              34**Item
                  1A.**
              **Risk
                  Factors**
              
              34**Item
                  2.**
              **Unregistered
                  Sales of Equity Securities and Use of Proceeds**
              
              34**Item
                  3.**
              **Defaults
                  Upon Senior Securities**
              
              34**Item
                  4.**
              **Submission
                  of Matters to a Vote of Security Holders**
              
              34**Item
                  5.**
              **Other
                  Information**
              
              34**Item
                  6.**
              **Exhibits**
              
              35**Signatures**
              
              36


Page
          2


**PRELIMINARY
      NOTES**




When
      we
      use the terms “NYFIX”, the “Company”, “we”, “us” and “our”, we mean NYFIX, Inc.
      and its consolidated subsidiaries.




**Forward
      Looking Statements**




This
      quarterly report on Form 10-Q contains statements that constitute
“forward-looking statements” within the meaning of the safe harbor provisions of
      The Private Securities Litigation Reform Act of 1995. In addition, NYFIX and
      NYFIX representatives from time to time make forward-looking statements in
      other
      contexts, such as earnings releases and investor calls. In some cases, you
      can
      identify these statements by forward-looking words such as “may,” “might,”
“will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“predict,” “potential” or “continue,” and the negative of these terms and other
      comparable terminology. These forward-looking statements, which are subject
      to
      known and unknown risks, uncertainties and assumptions about us, may include
      projections of our future financial performance based on our growth strategies
      and anticipated trends in our business. These statements are only predictions
      based on our current expectations and projections about future events. There
      are
      important factors that could cause our actual results, level of activity,
      performance or achievements to differ materially from the results, level of
      activity, performance or achievements expressed or implied by the
      forward-looking statements. In particular, you should consider the numerous
      risks and uncertainties described under Part I Item 1A. - Risk Factors in
      our Annual Report on Form 10-K filed for the fiscal year ended December 31,
      2007
      (“2007 Form 10-K”).




These
      risks and uncertainties are not exhaustive. Other sections of the 2007 Form
      10-K
      and of this report describe additional factors that could adversely impact
      our
      business and financial performance. Moreover, we operate in a very competitive
      and rapidly changing environment. New risks and uncertainties emerge from time
      to time, and it is not possible to predict all risks and uncertainties, nor
      can
      we assess the impact of all factors on our business or the extent to which
      any
      factor, or combination of factors, may cause actual results to differ materially
      from those contained in any forward-looking statements.




Although
      we believe the expectations reflected in the forward-looking statements are
      reasonable, we cannot guarantee future results, level of activity, performance
      or achievements. Moreover, neither we nor any other person assumes
      responsibility for the accuracy or completeness of any of these forward-looking
      statements. You should not rely upon forward-looking statements as guarantees
      of
      future events. We disclaim any duty to update any of these forward-looking
      statements after the filing of this report to conform our prior statements
      to
      actual results or revised expectations and we do not intend to do so, and these
      forward-looking statements should not be relied upon as representing our views
      as of any date subsequent to the filing of this report.




Forward-looking
      statements include, but are not limited to, statements about:





·
            the
                impact of recording a significant impairment charge relating to goodwill
                due to the fact that we have not been
                profitable;


·
            the
                effects of current, pending and future legislation;


·
            the
                impact of regulation and regulatory actions;


·
            our
                ability to achieve and maintain effective internal control over financial
                reporting in accordance with Securities and Exchange Commission (“SEC”)
                rules promulgated under Section 404 of the Sarbanes-Oxley Act of
                2002 (the
                “Sarbanes-Oxley Act”);


·
            the
                impact of accounting for stock-based compensation and ongoing regulatory
                investigations, including the possibility of new and significant
                information subsequently arising which could lead to different
                determinations and require different accounting treatment;


·
            actions
                and initiatives by both current and future competitors;


·
            our
                ability to accommodate increased levels of trading activity and keep
                current with market data
                requirements;


·
            our
                business’ possible or assumed future results of operations and cash
                flows;


·
            our
                business’ competitive position;


·
            the
                impact of current market conditions on the financial stability of
                our
                clients;


·
            potential
                growth opportunities available to our
                business;


·
            the
                likelihood of success and impact of
                litigation;


·
            our
                expectation with respect to securities markets and general economic
                conditions; and


·
            our
                ability to keep up with rapid technological
                change.




We
      expressly qualify in their entirety all forward-looking statements attributable
      to us or any person acting on our behalf by the cautionary statements contained
      or referred to in this section.


Page
          3


**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Unaudited Financial Statements**




**NYFIX,
      Inc. and Subsidiaries**


**Condensed
      Consolidated Balance Sheets**


**(in
      thousands, except share and per share amounts)**





**September 30,**
            
            **December 31,****2008**
            
            **2007****(Unaudited)**
            
            **(Audited)****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            52,502
            
            $
            75,657Accounts
                receivable, less allowances of $173 and $282, respectively
            
            
            13,715
            
            
            14,609Clearing
                assets
            
            
            305,712
            
            
            483,867Prepaid
                expenses and other current assets
            
            
            5,412
            
            
            7,900Total
                current assets
            
            
            377,341
            
            
            582,033Property
                and equipment, net of accumulated depreciation and amortization of
                $42,897
                and $37,838, respectively
            
            
            22,282
            
            
            21,478Capitalized
                software development costs, net of accumulated amortization of $17,053
                and
                $15,755, respectively
            
            
            7,772
            
            
            5,789Goodwill
            
            
            58,254
            
            
            57,401Acquired
                intangible assets, net of accumulated amortization of $11,603 and
                $10,967,
                respectively
            
            
            8,788
            
            
            3,708Other
                assets, net
            
            
            735
            
            
            1,745Total
                assets
            
            $
            475,172
            
            $
            672,154**Liabilities
                and Stockholders' Equity**Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            30,780
            
            $
            39,163Clearing
                liabilities
            
            
            302,674
            
            
            483,600Current
                portion of capital lease obligations
            
            
            1,370
            
            
            923Current
                portion of other long-term liabilities
            
            
            1,279
            
            
            1,564Deferred
                revenue
            
            
            4,862
            
            
            4,648Total
                current liabilities
            
            
            340,965
            
            
            529,898Long-term
                portion of capital lease obligations
            
            
            1,827
            
            
            550Long-term
                debt
            
            
            9,963
            
            
            9,941Other
                long-term liabilities
            
            
            1,379
            
            
            2,354Total
                liabilities
            
            
            354,134
            
            
            542,743Commitments
                and contingenciesStockholders'
                equity:Preferred
                stock, $1.00 par value; 5,000,000 shares authorized:Series
                A, none issued
            
            
            -
            
            
            -Series
                B Voting Convertible, 1,500,000 shares issued and outstanding; liquidation
                preference of $76,313 at September 30, 2008
            
            
            62,092
            
            
            62,092Series
                C Non-Voting Convertible, none issued
            
            
            -
            
            
            -Common
                stock, $0.001 par value; 100,000,000 shares authorized; 38,976,667
                and
                37,725,758 shares issued, respectively
            
            
            269,881
            
            
            261,307Preferred
                stock dividend distributable, 525,000 common shares at December 31,
                2007
            
            
            -
            
            
            2,441Accumulated
                deficit
            
            
            (197,270
            )
            
            (183,232
            )Treasury
                stock, 923,108 and 906,826 shares, respectively, at cost
            
            
            (12,600
            )
            
            (13,194
            )Accumulated
                other comprehensive loss
            
            
            (1,065
            )
            
            (3
            )Total
                stockholders' equity
            
            
            121,038
            
            
            129,411Total
                liabilities and stockholders' equity
            
            $
            475,172
            
            $
            672,154




The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.


Page
          4





**NYFIX,
                Inc. and Subsidiaries****Condensed
                Consolidated Statements of Operations
                (Unaudited)****(in
                thousands, except per share
                amounts)**


**Three Months Ended**
                **September 30,**
              
              **Nine Months Ended**
                **September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Revenue:**Subscription
                  and maintenance
              
              $
              17,747
              
              $
              16,556
              
              $
              52,772
              
              $
              50,301Transaction
              
              
              10,842
              
              
              15,389
              
              
              34,941
              
              
              38,757Product
                  sales and services
              
              
              586
              
              
              618
              
              
              1,491
              
              
              1,993Total
                  revenue
              
              
              29,175
              
              
              32,563
              
              
              89,204
              
              
              91,051**Cost
                  of revenue:**Subscription
                  and maintenance
              
              
              7,985
              
              
              8,796
              
              
              23,457
              
              
              25,711Transaction
              
              
              5,595
              
              
              8,869
              
              
              17,649
              
              
              22,629Product
                  sales and services
              
              
              86
              
              
              143
              
              
              254
              
              
              736Total
                  cost of revenue
              
              
              13,666
              
              
              17,808
              
              
              41,360
              
              
              49,076**Gross
                  profit**
              
              
              15,509
              
              
              14,755
              
              
              47,844
              
              
              41,975**Operating
                  expense:**Selling,
                  general and administrative
              
              
              18,251
              
              
              21,995
              
              
              58,871
              
              
              59,224Depreciation
                  and amortization
              
              
              471
              
              
              379
              
              
              1,412
              
              
              1,039SEC
                  investigation, restatement and related expenses
              
              
              170
              
              
              612
              
              
              438
              
              
              5,597Integration
                  charges
              
              
              139
              
              
              -
              
              
              735
              
              
              -Restructuring
                  charge
              
              
              -
              
              
              -
              
              
              216
              
              
              -Loss
                  from operations
              
              
              (3,522
              )
              
              (8,231
              )
              
              (13,828
              )
              
              (23,885
              )Interest
                  expense
              
              
              (123
              )
              
              (137
              )
              
              (489
              )
              
              (399
              )Investment
                  income
              
              
              251
              
              
              975
              
              
              1,027
              
              
              3,299Other
                  income (expense), net
              
              
              -
              
              
              8
              
              
              -
              
              
              (4
              )Loss
                  before income tax provision
              
              
              (3,394
              )
              
              (7,385
              )
              
              (13,290
              )
              
              (20,989
              )Income
                  tax provision
              
              
              128
              
              
              47
              
              
              383
              
              
              141Net
                  loss
              
              
              (3,522
              )
              
              (7,432
              )
              
              (13,673
              )
              
              (21,130
              )Accumulated
                  preferred dividends
              
              
              (827
              )
              
              (1,260
              )
              
              (2,796
              )
              
              (4,686
              )Loss
                  applicable to common stockholders
              
              $
              (4,349
              )
              $
              (8,692
              )
              $
              (16,469
              )
              $
              (25,816
              )Basic
                  and diluted loss per common share
              
              $
              (0.11
              )
              $
              (0.24
              )
              $
              (0.44
              )
              $
              (0.71
              )Basic
                  and diluted weighted average common shares outstanding
              
              
              38,044
              
              
              36,860
              
              
              37,611
              
              
              36,146





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.


Page
          5





**NYFIX,
      Inc. and Subsidiaries**


**Condensed
      Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Loss
      (Unaudited)**


**For
      the Nine Months Ended September 30, 2008**


**(in
      thousands, except share amounts)**





**Series B Voting Convertible**
            
            **Preferred****stock**
            
            
            
            
            
            
            
            **Accumulated**
              **other**
            
            **Total****preferred stock issued**
            
            **dividend**
            
            **Common stock issued**
            
            **Accumulated**
            
            **Treasury**
            
            **comprehensive**
            
            **stockholders'****Shares**
            
            **Amount**
            
            **distributable**
            
            **Shares**
            
            **Amount**
            
            **deficit**
            
            **stock**
            
            **loss**
            
            **equity**Balance
                December 31, 2007
            
            
            1,500,000
            
            $
            62,092
            
            $
            2,441
            
            
            37,725,758
            
            $
            261,307
            
            $
            (183,232
            )
            $
            (13,194
            )
            $
            (3
            )
            $
            129,411Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (13,673
            )
            
            -
            
            
            -
            
            
            (13,673
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,062
            )
            
            (1,062
            )Total
                comprehensive loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (14,735
            )Exercise
                of stock options
            
            
            -
            
            
            -
            
            
            -
            
            
            4,500
            
            
            12
            
            
            -
            
            
            -
            
            
            -
            
            
            12Issuance
                of common stock for restricted stock units settled in
                shares
            
            
            -
            
            
            -
            
            
            -
            
            
            196,409
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Common
                shares issued in payment of preferred stock dividend
            
            
            -
            
            
            -
            
            
            (2,441
            )
            
            1,050,000
            
            
            2,441
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
                of shares from treasury stock pursuant to employment
                agreement
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (300
            )
            
            (365
            )
            
            665
            
            
            -
            
            
            -Purchase
                of treasury shares (16,282 shares)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (71
            )
            
            -
            
            
            (71
            )Contingent
                conversion price adjustment related to convertible notes
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            15
            
            
            -
            
            
            -
            
            
            -
            
            
            15Stock-based
                compensation expense
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            6,406
            
            
            -
            
            
            -
            
            
            -
            
            
            6,406Balance
                September 30, 2008
            
            
            1,500,000
            
            $
            62,092
            
            $
            -
            
            
            38,976,667
            
            $
            269,881
            
            $
            (197,270
            )
            $
            (12,600
            )
            $
            (1,065
            )
            $
            121,038





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.


Page
          6





**NYFIX,
      Inc. and Subsidiaries**


**Condensed
      Consolidated Statements of Cash Flows (Unaudited)**


**(in
      thousands)**





**Nine Months Ended**
              **September 30,****2008**
            
            **2007**Operating
                activities:Net
                loss
            
            $
            (13,673
            )
            $
            (21,130
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            7,691
            
            
            7,735Restructuring
                charge
            
            
            216
            
            
            -Non-cash
                integration charge
            
            
            502
            
            
            -Stock-based
                compensation expense
            
            
            6,406
            
            
            260Amortization
                of debt discounts and premiums
            
            
            36
            
            
            38Deferred
                income taxes
            
            
            146
            
            
            110(Recovery
                of) provision for doubtful accounts
            
            
            (46
            )
            
            90Other,
                net
            
            
            -
            
            
            1Changes
                in assets and liabilities:Accounts
                receivable
            
            
            1,025
            
            
            (5,451
            )Clearing
                assets
            
            
            177,909
            
            
            (14,415
            )Prepaid
                expenses and other assets
            
            
            1,928
            
            
            (1,410
            )Deferred
                revenue
            
            
            184
            
            
            4Accounts
                payable, accrued expenses and other liabilities
            
            
            (2,911
            )
            
            4,768Clearing
                liabilities
            
            
            (180,567
            )
            
            13,790Net
                cash used in operating activities
            
            
            (1,154
            )
            
            (15,610
            )Investing
                activities:Capital
                expenditures for property and equipment
            
            
            (4,345
            )
            
            (8,398
            )Capitalization
                of software development costs
            
            
            (4,191
            )
            
            (2,945
            )Tax
                benefit attributable to goodwill
            
            
            237
            
            
            31Payment
                for acquisition of minority interests
            
            
            (7,227
            )
            
            -Payment
                for acquisition, net of cash received
            
            
            (6,946
            )
            
            -Proceeds
                from (expenditures related to) sale of discontinued operations,
                net
            
            
            2,066
            
            
            (1,318
            )Net
                cash used in investing activities
            
            
            (20,406
            )
            
            (12,630
            )Financing
                activities:Principal
                payments under capital lease obligations
            
            
            (798
            )
            
            (835
            )Proceeds
                from issuance of common stock, net of issuance costs
            
            
            12
            
            
            111Purchases
                of treasury shares
            
            
            (71
            )
            
            -Other,
                net
            
            
            (245
            )
            
            (277
            )Net
                cash used in financing activities
            
            
            (1,102
            )
            
            (1,001
            )Effect
                of exchange rate changes on cash
            
            
            (493
            )
            
            123Net
                decrease in cash and cash equivalents
            
            
            (23,155
            )
            
            (29,118
            )Cash
                and cash equivalents, beginning of period
            
            
            75,657
            
            
            105,888Cash
                and cash equivalents, end of period
            
            $
            52,502
            
            $
            76,770





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.


Page
          7





**1.**
            **Summary
                of Significant Accounting
                Policies**




*Nature
      of Operations*




NYFIX,
      Inc., together
      with its consolidated subsidiaries, provides electronic trading services
      including trading workstations, trade messaging software and trade messaging
      services to domestic and international market participants. In addition, NYFIX’s
      registered broker-dealer subsidiaries also provide automated trade execution
      services to institutional counterparties and operate a matched-book stock
      borrow/stock loan business.




The
      Company’s headquarters and principal offices are in New York, NY. The Company
      also has offices in London, Hong Kong, Boston, MA, and Lyndhurst, NJ. The
      Company operates redundant data centers in the northeastern United States,
      as
      well as a data center hub in London.




*Basis
      of Presentation of Interim Financial Statements*




The
      accompanying unaudited condensed consolidated financial statements were prepared
      by the Company pursuant to the rules and regulations of the SEC and, in the
      opinion of management, include all adjustments (consisting of normal recurring
      accruals and adjustments necessary for adoption of new accounting standards)
      necessary to present fairly the results of the interim periods shown. Certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with U.S. generally accepted accounting principles
      (“GAAP”) have been condensed or omitted pursuant to such SEC rules and
      regulations. Management believes that the disclosures made are adequate to
      make
      the information presented not misleading. The results for the interim periods
      are not necessarily indicative of results for the full year. The financial
      statements contained herein should be read in conjunction with the consolidated
      financial statements and notes thereto included in the 2007 Form 10-K.




The
      accompanying unaudited condensed consolidated financial statements include
      the
      accounts of NYFIX, Inc. and its majority-owned and wholly-owned subsidiaries.
      All significant intercompany balances and transactions have been eliminated
      in
      consolidation.




*Significant
      Accounting Policies*




There
      have been no material changes in the Company’s significant accounting policies
      during 2008, compared to what was disclosed in the 2007 Form 10-K.




**2.**
            **Equity
                Incentive Plans**




The
      Company has stock-based incentive plans under which time-based and
      performance-based stock options and restricted stock units (“RSUs”) have been
      granted to employees and non-employee members of the Board of Directors.
      Generally, these options and RSUs vest over a period of four years and are
      forfeited, except in certain circumstances, in the event the employee or
      director terminates his or her employment or relationship with the Company.
      Stock options expire in ten years.




The
      fair
      value of options is estimated using the Black-Scholes option-pricing model
      which
      considers, among other factors, the expected life of the award and the expected
      volatility of the Company’s stock price. Although the Black-Scholes model meets
      the requirements of Statement of Financial Accounting Standards (“SFAS”) 123
      (revised 2004), *Share-Based
      Payment* and
      Staff Accounting Bulletin No. 107, *Share-Based
      Payment* ,
      the
      fair values generated by the model may not be indicative of the actual fair
      values of the Company’s awards, as it does not consider other factors important
      to those stock-based compensation awards, such as continued employment, periodic
      vesting requirements, and limited transferability.


Page
          8




*Time-based
      Stock Option Awards*




A
      summary
      of activity under time-based stock option plans for the nine months ended
      September 30, 2008, follows:




**Options**
            
            **Shares**
            
            **Weighted**
              **average**
              **exercise price**
            
            **Weighted**
              **average**
              **remaining**
              **contractual**
              **term (years)**
            
            **Aggregate**
              **intrinsic**
              **value (in**
              **thousands)**Outstanding
                at beginning of the year
            
            
            8,739,684
            
            $
            5.98Granted
            
            
            1,392,867
            
            $
            3.80Exercised
            
            
            (4,500
            )
            $
            2.72Cancelled
            
            
            (797,821
            )
            $
            5.17Outstanding
                at end of the period
            
            
            9,330,230
            
            $
            5.73
            
            
            8.2
            
            $
            18Exercisable
                at end of the period
            
            
            4,329,939
            
            $
            7.29
            
            
            7.1
            
            $
            18





*Time-Based
      RSUs*




A
      summary
      of activity under time-based restricted stock units for the nine months ended
      September 30, 2008, follows:





**Restricted Stock Units**
            
            **Shares**
            
            **Weighted**
              **average grant**
              **date fair value**
            
            **Aggregate**
              **intrinsic value**
              **(in thousands)**
              **(1)**Outstanding
                at beginning of the year
            
            
            768,250
            
            $
            4.60Granted
            
            
            260,566
            
            $
            3.81Settled
                with shares
            
            
            (196,409
            )
            $
            4.46
            
            $
            752Cancelled
            
            
            (161,122
            )
            $
            4.59Outstanding
                at end of the period
            
            
            671,285
            
            $
            4.32




(1)
      Represents the value of NYFIX stock on the date that the restricted stock units
      vested.


On
      grant
      date the fair value for these vested awards was $876,000.


Page
          9




*Performance-based
      Awards*




A
      summary
      of activity under performance-based stock option plans for the nine months
      ended
      September 30, 2008, follows:





**Options**
            
            **Shares**
            
            **Weighted**
              **average**
              **exercise price**
            
            **Weighted**
              **average**
              **remaining**
              **contractual**
              **term (years)**
            
            **Aggregate**
              **intrinsic**
              **value (in**
              **thousands)**Outstanding
                at beginning of the year
            
            
            1,428,855
            
            $
            4.60Granted
            
            
            300,000
            
            $
            3.85Exercised
            
            
            -
            
            
            -Cancelled
            
            
            -
            
            
            -Outstanding
                at end of the period
            
            
            1,728,855
            
            $
            4.47
            
            
            9.1
            
            $
            -Exercisable
                at end of the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -





In
      addition, during 2007, 350,000 performance-based RSUs were granted.
      Performance-based stock options and performance-based RSUs are eligible to
      be
      earned (in amounts ranging from 0% to 100% of the award) in equal pro rata
      installments over four one-year performance periods based on the achievement
      of
      annual goals for revenue and operating earnings before interest, taxes,
      depreciation and amortization. Any portion of performance-based stock options
      and performance-based RSUs not earned in years one through three is eligible
      to
      be earned in year four based on the achievement of goals in year four. The
      2007
      goals were not met and no performance-based stock options and performance-based
      RSUs were earned in 2007.




During
      2008, no additional performance-based RSUs have been granted.





*Stock-based
      Compensation Expense*




Stock-based
      compensation expense during the three and nine months ended September 30, 2008
      was approximately $1.6 million and $6.4 million, respectively. During the three
      and nine months ended September 30, 2007 stock-based compensation expense was
      approximately $(0.3) million and $0.1 million, respectively.




As
      of
      September 30, 2008, there was
      $15.3
      million of
      unrecognized compensation costs related to outstanding awards. The Company
      expects to recognize these costs over a weighted average period of 1.4
      years.




**3.**
            **Acquisitions
                and Dispositions**




*Acquisition
      of FIXCITY, Ltd.*




On
      April
      4, 2008, the Company acquired 100% of the outstanding stock of FIXCITY, Ltd.
      (“FIXCITY”), a U.K.-based specialist in web-based electronic trading and
      liquidity discovery solutions. This acquisition reflects the Company’s strategy
      to aggregate liquidity for clients and to provide real-time information to
      make
      trading decisions. This acquisition also enhances the Company’s strategy of
      global expansion by adding significantly to its international client base.
      The
      Company has included the operating results of FIXCITY in its condensed
      consolidated financial statements since the date of acquisition.




Pursuant
      to the terms of the share purchase agreement, the Company paid £3.3 million (or
      approximately $6.6 million) in cash and also agreed to pay an additional $1.0
      million in cash contingent on the successful completion of the integration
      of
      the existing FIXCITY and NYFIX technology platforms within six months of the
      closing date. In October 2008, the Company determined that the integration
      contingency was satisfied and made the $1.0 million payment. This payment will
      be recorded on the Company’s consolidated balance sheet in the fourth quarter as
      part of goodwill. The Company incurred $0.7 million in legal and consulting
      fees
      related to this acquisition.




In
      addition, the share purchase agreement provides the potential for cash earn-out
      payments in years 1, 2 and 3 following the acquisition totaling up to £3.7
      million (or approximately $6.6 million) if certain revenue targets are achieved,
      with potential additional payments based on varying percentages of all such
      revenue if higher revenue thresholds are achieved.


Page
          10




The
      purchase price for FIXCITY has been allocated to the assets acquired and
      liabilities assumed based on the fair values at the date of acquisition as
      follows:




**(in thousands)**Assets:Current
                assets (including cash of $393)
            
            $
            527Fixed
                assets
            
            
            28Intangible
                assets
            
            
            6,194Goodwill
            
            
            1,181Total
                assets acquired
            
            
            7,930Liabilities:Current
                liabilities
            
            
            590Total
                liabilities assumed
            
            
            590Net
                assets acquired
            
            $
            7,340




Since
      the
      acquisition, the Company has incurred related integration costs. The integration
      costs incurred during the nine months ended September 30, 2008 included a $0.5
      million write-off of capitalized software replaced by acquired technology and
      $0.2 million of third party consulting costs to integrate the acquired
      technology platform.





*Sale
      of NYFIX Overseas, Inc.*





In
      August
      2006, the Company disposed of all of the issued and outstanding capital stock
      of
      NYFIX Overseas, Inc. (“NYFIX Overseas”), a former wholly-owned subsidiary, which
      previously comprised the Company’s Order Book Management Systems Division, to
      G.L. Trade S.A. (“GL”). In June 2008, the Company received payment of $2.1
      million from GL in full settlement of the available earn-out payment, net of
      amounts paid to the NYFIX Overseas management team. This earn-out was recognized
      in results of operations during the fourth quarter of 2007.


Page
          11


**4.**
            **Loss
                Per Share Applicable to Common
                Stockholders**




The
      following table sets forth the computations of loss per share applicable to
      common stockholders for the three and nine months ended September 30, 2008
      and
      2007:




**Three Months Ended**
              **September 30,**
            
            **Nine Months Ended**
              **September 30,**(in
                thousands, except per share amounts)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                loss
            
            $
            (3,522
            )
            $
            (7,432
            )
            $
            (13,673
            )
            $
            (21,130
            )Less:
                Accumulated preferred dividends
            
            
            (827
            )
            
            (1,260
            )
            
            (2,796
            )
            
            (4,686
            )Loss
                applicable to common stockholders, basic and diluted
            
            $
            (4,349
            )
            $
            (8,692
            )
            $
            (16,469
            )
            $
            (25,816
            )Basic
                and diluted loss per common share
            
            $
            (0.11
            )
            $
            (0.24
            )
            $
            (0.44
            )
            $
            (0.71
            )Weighted
                average common shares outstanding (1):Basic
                and diluted shares
            
            
            38,044
            
            
            36,860
            
            
            37,611
            
            
            36,146Potentially
                dilutive securities (2):Outstanding
                time-based stock options (3)
            
            
            9,330
            
            
            1,726
            
            
            9,330
            
            
            1,726Outstanding
                time-based restricted stock units (3)
            
            
            671
            
            
            -
            
            
            671
            
            
            -Outstanding
                nonvested restricted stock grants (3)
            
            
            -
            
            
            48
            
            
            -
            
            
            48Warrants
                (3)
            
            
            2,250
            
            
            2,250
            
            
            2,250
            
            
            2,250Convertible
                notes (3)
            
            
            1,776
            
            
            1,327
            
            
            1,776
            
            
            1,327Convertible
                preferred stock (3)
            
            
            15,000
            
            
            15,000
            
            
            15,000
            
            
            15,000





(1)
            Excludes
                nonvested restricted stock and restricted stock
                units.


(2)
            Excludes
                performance-based grants as the necessary conditions have not been
                satisfied.


(3)
            The
                impact of time-based stock options, time-based restricted stock units,
                restricted stock grants, warrants, the convertible notes and the
                convertible preferred stock on earnings per share is antidilutive
                in a
                period of loss.




**5.**
            **Other
                Balance Sheet Information**




Accounts
      payable and accrued expenses consisted of the following at September 30, 2008
      and December 31, 2007:




**September 30,**
            
            **December 31,**(in
                thousands)
            
            **2008**
            
            **2007**Accounts
                payable
            
            $
            10,349
            
            $
            16,369Taxes,
                other than income and payroll taxes
            
            
            74
            
            
            439Compensation
                and related
            
            
            8,505
            
            
            12,629Deferred
                insurance proceeds (Note 11)
            
            
            10,118
            
            
            -Purchase
                price payable for minority interests
            
            
            46
            
            
            7,273Other
            
            
            1,688
            
            
            2,453Total
                accounts payable and accrued expenses
            
            $
            30,780
            
            $
            39,163


Page
          12


**6.**
            **Broker-Dealer
                Operations**




*Clearing
      Assets and Liabilities*




Clearing
      assets and liabilities consisted of the following at September 30, 2008 and
      December 31, 2007:




**September 30,**
            
            **December 31,**(in
                thousands)
            
            **2008**
            
            **2007**Securities
                borrowed
            
            $
            298,151
            
            $
            480,884Securities
                failed-to-deliver
            
            
            3,597
            
            
            664Receivables
                from clearing organizations and firms
            
            
            2,435
            
            
            1,270Deposits
                with clearing organizations and others
            
            
            1,529
            
            
            1,049Total
                clearing assets
            
            $
            305,712
            
            $
            483,867Securities
                loaned
            
            $
            298,580
            
            $
            482,959Securities
                failed-to-receive
            
            
            33
            
            
            641Payables
                to clearing organizations and firms
            
            
            4,061
            
            
            -Total
                clearing liabilities
            
            $
            302,674
            
            $
            483,600





*Securities
      Lending*




The
      Company receives collateral under securities borrowed transactions, which it
      is
      allowed by contract or custom to sell or repledge. As of September 30, 2008,
      securities borrowed with a fair value of $299.5 million were repledged for
      securities loaned. The gross amounts of interest earned on cash provided to
      counterparties as collateral for securities borrowed and interest incurred
      on
      cash received from counterparties as collateral for securities loaned and the
      resulting net amount included in transaction revenue for the three and nine
      months ended September 30, 2008 and 2007, were as follows:




**Three Months Ended**
            
            **Nine Months Ended****September 30,**
            
            **September 30,**(in
                thousands)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Interest
                earned
            
            $
            2,088
            
            $
            2,854
            
            $
            7,067
            
            $
            10,918Interest
                incurred
            
            
            (1,811
            )
            
            (2,513
            )
            
            (6,274
            )
            
            (9,913
            )Net
            
            $
            277
            
            $
            341
            
            $
            793
            
            $
            1,005




*Regulatory
      Net Capital Requirements*




*U.S.
      registered broker-dealer subsidiaries* - NYFIX
      Securities Corporation (“NYFIX Securities”) and NYFIX
      Millennium, L.L.C. (“NYFIX Millennium”) are
      subject to the SEC’s Uniform Net Capital Rule (15c3-1), which requires the
      maintenance of minimum regulatory net capital. NYFIX Securities has elected
      to
      use the alternative method, as permitted by the rule, which requires the
      maintenance of minimum regulatory capital (as defined in the rule) equal to
      the
      greater of $250,000 or 2% of aggregate debit items arising from customer
      transactions (as defined in the rule). NYFIX Securities’ membership in the
      Depository Trust & Clearing Corporation (the “DTCC”) requires it to maintain
      excess regulatory net capital of $10.0 million. NYFIX Millennium has elected
      to
      use the aggregate indebtedness standard method, which requires that the ratio
      of
      aggregate indebtedness to regulatory net capital (both as defined in the rule)
      shall not exceed 15 to 1. The regulatory net capital ratio for NYFIX Millennium
      at September 30, 2008 was 0.73 to 1.




*U.K.
      registered subsidiaries* - NYFIX
      International, Ltd. (“NYFIX International”) and FIXCITY are registered firms of
      the Financial Services Authority (“FSA”) in the United Kingdom. NYFIX
      International and FIXCITY are required to maintain the greater of the base
      capital resources requirement of €730,000 and € 50,000,
      respectively, or the variable capital resources requirement, which is made
      up of
      credit risk, market risk and fixed overhead (equal to three months average
      expenditures) requirements.




At
      September 30, 2008, the aggregate regulatory net capital/resources of the
      Company’s regulated subsidiaries in the United States and United Kingdom were
      $33.3 million, an excess of $21.1 million over the Company’s aggregate
      requirement of $12.2 million (including the $10 million excess required by
      DTCC
      described above).


Page
          13




**7.
      Restructuring Charges**




During
      October 2007, the Company entered into a strategic agreement with Citi’s Lava
      Trading (“Lava”) to offer NYFIX Fusion OMS clients a transition arrangement to
      the Lava ColorPalette® OMS in connection with the decision to discontinue the
      Fusion OMS product. As part of this discontinuation, the Company offered
      one-time termination benefits to affected employees. The Company recorded a
      restructuring charge related to this discontinuation of $0.7 million during
      the
      nine months ended September 30, 2008, which consisted of severance and retention
      costs. The Company has substantially completed the transition to Lava and does
      not expect to incur any additional costs.




In
      March
      2008, the Company terminated its lease and corresponding sublease of office
      space previously occupied in Stamford, CT for the payment of a $0.5 million
      lease termination fee. As a result, the Company reversed $0.5 million of
      previously recorded restructuring costs in the first quarter of
      2008.




The
      liabilities related to the restructuring charges are included in the current
      portion of other long-term liabilities and other long-term liabilities. The
      following table summarizes the activity in the liabilities related to the
      restructuring charges for the nine months ended September 30, 2008:




(in
                thousands)
            
            **Lease costs, net**
              **of sublease**
              **income**
            
            **Severance**
            
            **Total****2004
                restructuring costs**Remaining
                liability at December 31, 2007
            
            $
            643
            
            $
            -
            
            $
            643Cash
                payments
            
            
            (151
            )
            
            -
            
            
            (151
            )Non-cash
                charges and other
            
            
            38
            
            
            -
            
            
            38Remaining
                liability at September 30, 2008
            
            
            530
            
            
            -
            
            
            530**2006
                restructuring costs**Remaining
                liability at December 31, 2007
            
            
            998
            
            
            -
            
            
            998Lease
                termination fee
            
            
            (514
            )
            
            -
            
            
            (514
            )Cash
                payments
            
            
            (22
            )
            
            -
            
            
            (22
            )Restructuring
                charge reversal
            
            
            (471
            )
            
            -
            
            
            (471
            )Non-cash
                charges and other
            
            
            9
            
            
            -
            
            
            9Remaining
                liability at September 30, 2008
            
            
            -
            
            
            -
            
            
            -**2007
                restructuring costs**Remaining
                liability at December 31, 2007
            
            
            -
            
            
            293
            
            
            293Restructuring
                charge
            
            
            -
            
            
            687
            
            
            687Cash
                payments
            
            
            -
            
            
            (980
            )
            
            (980
            )Remaining
                liability at September 30, 2008
            
            
            -
            
            
            -
            
            
            -Total
                restructuring liability at September 30, 2008
            
            $
            530
            
            $
            -
            
            
            530Less:
                current portion
            
            (348
            )Long-term
                portion
            $
            182




**8.**
            **Income
                Taxes**




The
      income tax provision differs from the statutory U.S. federal income tax rate
      due
      primarily to a valuation allowance provided against net deferred tax assets.
      As
      described in the Company’s 2007 Form 10-K, the Company maintains a valuation
      allowance in accordance with SFAS No. 109, *Accounting
      for Income Taxes,* on its
      net deferred tax assets. This allowance excludes the potential off-setting
      impact of the deferred tax liability for amortization of goodwill related to
      the
      acquisition of NYFIX
      Millennium and previously Renaissance
      Trading Technologies, LLC (“Renaissance”) due to the indefinite life of
      goodwill. Until the Company achieves and sustains profitability, it plans to
      maintain a valuation allowance on its net deferred tax assets.


Page
          14


**9.**
            **Total
                Comprehensive Loss**




The
      components of total comprehensive loss were as follows:




**Three Months Ended**
              **September 30,**
            
            **Nine Months Ended**
              **September 30,**(in
                thousands)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                loss
            
            $
            (3,522
            )
            $
            (7,432
            )
            $
            (13,673
            )
            $
            (21,130
            )Foreign
                currency translation adjustment
            
            
            (896
            )
            
            45
            
            
            (1,062
            )
            
            130Total
                comprehensive loss
            
            $
            (4,418
            )
            $
            (7,387
            )
            $
            (14,735
            )
            $
            (21,000
            )




**10.**
            **Business
                Segment Information**




In
      accordance with SFAS No. 131, *Disclosures
      about Segments of an Enterprise and Related Information* ("SFAS
      131"), the Company is reporting certain information relating to its operating
      segments. The Company’s segments are organized into three operating divisions
      through which the Company’s chief operating decision makers manage the Company’s
      business. These divisions, as described in more detail below, are organized
      around the products and services provided to customers and represent the
      Company’s reportable segments under SFAS 131.




*FIX
      Division* .
      The FIX
      Division provides messaging channels for institutions that are members of its
      trading community for order routing and other value-added services. The FIX
      Division also provides software and consultative services to enable global
      financial institutions to utilize the industry established Financial Information
      Exchange Protocol for messaging, monitoring and processing transaction
      information. The operating results of FIXCITY have been included in the FIX
      Division since April 4, 2008, the date of acquisition.




*Transaction
      Services Division* .
      The
      Transaction Services Division is currently comprised of the two U.S. registered
      broker-dealer subsidiaries, NYFIX Millennium and NYFIX Securities, together
      with
      the desk agency execution business of NYFIX International in the U.K. NYFIX
      Millennium, an alternative trading system (“ATS”) registered under SEC
      Regulation ATS, provides anonymous matching and routing of U.S. equity
      securities. NYFIX Securities provides direct electronic market access and
      algorithmic trading products, operates a matched-book stock borrow/stock loan
      business and clears trades on behalf of itself and NYFIX Millennium. NYFIX
      Millennium and NYFIX Securities also resell certain products and services
      offered by the FIX Division and the OMS Division. In the second quarter of
      2007
      the Company’s Board of Directors approved a new initiative, Euro
      Millennium *TM* ,
      a
      multilateral trading facility for non-displayed liquidity in pan-European listed
      cash equities housed within NYFIX International. During the three and nine
      months ended September 30, 2008, the Company incurred costs of $2.0 million
      and
      $6.7 million, respectively, related to this initiative. The Company incurred
      $1.3 million and $2.0 million of these costs during the three and nine months
      ended September 30, 2007, respectively. Euro Millennium was launched in March
      2008 for matching U.K. listed cash equities and was recently expanded to match
      cash equities in other markets. Si gnificant
      work remains to connect new clients and to enhance the electronic trading
      capabilities of existing clients to take full advantage of this
      platform .
      As a
      result, no material revenues have been generated from this initiative and the
      Company has included these costs in Corporate & Other in the segment
      information reported below.




*Order
      Management Systems Division* .
      The OMS
      Division provides software applications for the management of New York Stock
      Exchange (“NYSE”) and Nasdaq listed trading activities. These products enable
      customers to take advantage of the broad range of products and services offered
      by other divisions. The Company does not allocate to the OMS Division any
      introductory revenue for business generated by the FIX Division and the
      Transaction Services Division from OMS Division clients. The OMS Division
      includes revenues and expenses related to the discontinued Fusion OMS product.
      The operating loss for the OMS Division during the nine months ended September
      30, 2008 includes severance related restructuring charges associated with
      discontinuing the Fusion OMS product of $0.7 million, as well as additional
      operating losses of $0.5 million and $0.8 million during the three and nine
      months ended September 30, 2008, respectively, associated with supporting the
      Fusion OMS product during this wind-down phase.




The
      Company does not currently break out total assets by reportable segment as
      there
      is a high level of shared utilization between certain reportable
      segments.


Page
          15


The
      following table presents information by reportable segment for the three and
      nine months ended September 30, 2008 and 2007:




(in
                thousands)
            
            **FIX Division**
            
            **Transaction**
              **Services**
              **Division**
            
            **OMS Division**
            
            **Corporate &**
              **Other (1)**
            
            **Total****Three
                Months Ended September 30, 2008**Revenue
                - external customers
            
            $
            16,690
            
            $
            11,791
            
            $
            694
            
            $
            -
            
            $
            29,175Revenue
                (cost of revenues), net - intersegment
            
            
            645
            
            
            (766
            )
            
            121
            
            
            -
            
            
            -Net
                revenue
            
            
            17,335
            
            
            11,025
            
            
            815
            
            
            -
            
            
            29,175Operating
                income (loss) (2)
            
            
            1,855
            
            
            (1,055
            )
            
            (1,316
            )
            
            (3,006
            )
            
            (3,522
            )**Three
                Months Ended September 30, 2007**Revenue
                - external customers
            
            $
            14,186
            
            $
            16,548
            
            $
            1,829
            
            $
            -
            
            $
            32,563Revenue
                (cost of revenues), net - intersegment
            
            
            678
            
            
            (888
            )
            
            210
            
            
            -
            
            
            -Net
                revenue
            
            
            14,864
            
            
            15,660
            
            
            2,039
            
            
            -
            
            
            32,563Operating
                income (loss) (2)
            
            
            712
            
            
            960
            
            
            (5,587
            )
            
            (4,316
            )
            
            (8,231
            )**Nine
                Months Ended September 30, 2008**Revenue
                - external customers
            
            $
            47,895
            
            $
            38,004
            
            $
            3,305
            
            $
            -
            
            $
            89,204Revenue
                (cost of revenues), net - intersegment
            
            
            2,210
            
            
            (2,756
            )
            
            546
            
            
            -
            
            
            -Net
                revenue
            
            
            50,105
            
            
            35,248
            
            
            3,851
            
            
            -
            
            
            89,204Operating
                income (loss) (2)
            
            
            5,380
            
            
            (4,103
            )
            
            (6,684
            )
            
            (8,421
            )
            
            (13,828
            )**Nine
                Months Ended September 30, 2007**Revenue
                - external customers
            
            $
            41,151
            
            $
            42,233
            
            $
            7,667
            
            $
            -
            
            $
            91,051Revenue
                (cost of revenues), net - intersegment
            
            
            1,799
            
            
            (2,452
            )
            
            653
            
            
            -
            
            
            -Net
                revenue
            
            
            42,950
            
            
            39,781
            
            
            8,320
            
            
            -
            
            
            91,051Operating
                income (loss) (2)
            
            
            2,208
            
            
            3,589
            
            
            (15,566
            )
            
            (14,116
            )
            
            (23,885
            )





(1)
      Corporate & Other includes SEC investigation, restatement and related
      expenses, corporate restructuring costs/reversals, Euro Millenium costs, certain
      transitional costs and other corporate items which are not allocated to
      reportable segments.





(2)
      Operating income (loss) by segment reflects a significant amount of costs which
      are allocated by headcount, usage and other methods, depending on the nature
      of
      the cost. The amount of costs allocated to the Transaction Division has
      increased during the three and nine months ended September 30, 2008 by $1.3
      million and $5.7 million, respectively, primarily due to redirected client
      efforts and reduced overall corporate scale following the decision to
      discontinue the Fusion OMS product.




**11.**
            **Commitments
                and Contingencies**




*Stock-based
      Compensation Related Matters*




*SEC
      Investigation*




On
      October 28, 2004, the Company received a request from the SEC relating to its
      historical stock option granting practices and related matters. On February
      15,
      2005, the SEC obtained a formal order of investigation, and in April 2005 issued
      a subpoena to the Company. In March and April 2005, the SEC issued subpoenas
      to
      a current director and to former officers and directors. The SEC has taken
      testimony from one current director, at least three former directors and at
      least one of the Company’s former employees, as well as from third parties,
      including the Company’s former independent registered public accounting firm.
      The SEC has also issued subpoenas to at least two current and former directors
      from whom it has not asked for testimony. The Company believes that it has
      cooperated fully with the SEC with respect to the investigation, which is still
      pending as of September 30, 2008.




*Grand
      Jury Subpoena*




In
      May
      2006, the Company received a grand jury subpoena from the U.S. Attorney for
      the
      Southern District of New York.  The subpoena sought documents relating to
      the Company’s granting of stock options.  With the agreement of the
      Assistant U.S. Attorney handling the case, the Company has responded to the
      subpoena by producing the documents it produced to the staff of the Division
      of
      Enforcement of the SEC. The U.S. Attorney has also conducted interviews with
      at
      least one current employee and two former employees (one of whom is a former
      officer) and with at least one employee of the Company’s former independent
      registered public accounting firm. This matter is still pending as of September
      30, 2008.


Page
          16




*Shareholder
      Derivative Actions*




The
      Company is named as a nominal defendant in two shareholder derivative
      actions, one pending in Connecticut Superior Court (the "Consolidated State
      Suit") and one currently on appeal from the United States District Court for
      the
      District of Connecticut (the "Consolidated Federal Suit"). These actions also
      name as defendants a number of the Company’s former officers and directors,
      including the Company’s former Chairman and Chief Executive Officer, another
      former Chief Executive Officer and director, the Company’s former Chief
      Information Officer, two former Chief Financial Officers, the Company’s former
      General Counsel and the Company’s former Executive Vice President and President
      of NYFIX Millennium. These actions demand unspecified money damages, ask for
      an
      accounting and seek rescission of allegedly misdated options based on, among
      other things, alleged breaches of fiduciary duty, unjust enrichment and breach
      of contract. Defendants filed motions to dismiss both of these
      matters.  Neither the date of the Connecticut Superior Court's ruling
      on the motion to dismiss the Consolidated State Suit, nor the outcome of that
      suit, can be predicted at this time. In July 2008, the United States District
      Court for the District of Connecticut dismissed the Consolidated Federal Suit
      and entered judgment in favor of the Company and the individual defendants.
      In
      August 2008, the plaintiffs in the Consolidated Federal Suit appealed the
      dismissal to the United States Second Circuit Court of Appeals. The Company
      and
      the individual defendants in the Consolidated Federal Suit cross-appealed one
      aspect of the District Court’s ruling related to the lack of findings that the
      plaintiffs complied with applicable law. Neither the outcome of the appeals
      nor
      the final outcome of the matter can be predicted at this time.




*Tax
      Matters*




In
      2007
      and 2008, the Company has had communications with the U.K. HM Revenue &
Customs (“HMRC”) relating to historical stock option exercises. Subsequent to
      the sale of NYFIX Overseas in August 2006, GL forwarded correspondence from
      the
      HMRC relating to NYFIX Overseas’ potential liability for payroll tax
      withholdings on prior option exercises by certain former employees. As of
      September 30, 2008, the Company has recorded a liability of $1.9 million for
      potential amounts due in the United Kingdom related to stock option exercises
      under Pay As You Earn, or PAYE, and National Insurance Contribution provisions
      (due to the Company’s indemnity obligations to GL).




Based
      upon the current information available and the liabilities recognized, the
      Company believes the resolution of this tax matter will not have a material
      effect on its consolidated financial condition or results of operations.
      However, the ongoing discussions with the taxing authorities could result in
      new
      information and higher than anticipated exposures. The Company is continuing
      to
      cooperate with the taxing authorities to resolve these matters.




*Other*




During
      the normal course of business, the Company becomes involved in various other
      routine legal proceedings, including issues pertaining to patent infringement,
      customer disputes and employee matters. The Company does not believe
      that the outcome of these matters will have a material adverse effect on its
      financial condition.




As
      noted
      separately in the condensed consolidated statements of operations, during the
      three and nine month periods ended September 30, 2008, the Company incurred
      $0.2
      million and $0.4 million, respectively, relating to the stock option
      investigation and subpoenas, the grand jury subpoena, related shareholder
      derivative litigation and the pursuit of insurance recoveries. During the three
      and nine months ended September 30, 2007, these costs were $0.6 million and
      $5.6
      million, respectively, which also included costs for related financial
      restatements and for settling expired options. These costs included outside
      counsel and auditors, contract attorneys and forensic accountants and other
      consultants. These costs do not include any portion of time that the Company’s
      employees dedicated to these matters. The Company will continue to incur
      expenses associated with these matters until such time as they are
      resolved.




To
      date,
      the Company has received an aggregate of $10.1 million in advances from three
      former Directors and Officers insurance policy carriers for fees incurred in
      defense of the SEC investigation into the Company’s historical stock option
      activity, as well as related litigation expenses. Of this amount, $10 million
      reflects the respective individual limits of two of these carriers. As these
      amounts can be recovered by the carriers in certain circumstances, the Company
      has deferred recognition of these proceeds in its operating results until
      further progress is made in resolving these contingencies. The Company is also
      pursuing reimbursement for additional amounts from the third carrier under
      a
      policy with a limit of $5.0 million.




Other
      than the amount described above for employee-related taxes for stock options,
      the Company, in accordance with SFAS No. 5, *Accounting
      for Contingencies* (“SFAS
      5”), has not recorded any liability with respect to these matters as it is
      currently unable to predict the outcomes and reasonably estimate the amounts
      of
      loss, if any. With respect to the SEC investigation of stock option grants,
      the
      grand jury subpoena, the State Court Consolidated Complaint, and the Federal
      Court Consolidated Complaint associated with such matters and other related
      matters, the Company could be subject to penalties, fines or regulatory
      sanctions or claims by current and former officers, directors or employees
      for
      indemnification of costs or losses they may incur and such amounts, if not
      reimbursed under the insurance policies, could have a material impact on the
      Company’s financial condition. In addition, other actions may be brought against
      the Company related to the matters described above.


Page
          17




**12.
      Stockholders’ Equity**




*Preferred
      Stock*




The
      Company is authorized to issue 5 million shares of preferred stock. In
      connection with the private placement of convertible preferred stock discussed
      below, 1.5 million shares were designated as Series B Voting Convertible
      Preferred Stock (“Series B Preferred Stock”) and 0.5 million as Series C
      Non-Voting Convertible Preferred Stock.




At
      September 30, 2008 and December 31, 2007, the Company had outstanding 1.5
      million shares of Series B Preferred Stock. Dividends on the Series B Preferred
      Stock are payable semiannually in shares of the Company’s common stock. The
      number of shares issuable in payment of dividends is determined at an annual
      rate of 7% of the $75 million purchase price (or $50 per share), divided by
      the
      conversion price then in effect (currently $5.00). Dividends on the Series
      B
      Preferred Stock are cumulative and all accumulated but unpaid dividends on
      the
      Series B Preferred Stock must be paid before any cash dividends may be paid
      to
      holders of common stock.




*Common
      Stock and Treasury Stock*




At
      December 31, 2007, the Company had outstanding 36,818,932 shares of common
      stock, with 906,826 held in treasury.




On
      December 11, 2007, the Board of Directors declared a dividend, payable January
      2, 2008, to holders of Series B Preferred Stock in payment of dividends
      accumulated through December 31, 2007. As a result, the Company issued 525,000
      shares of common stock, with a fair value of approximately $2,441,000 based
      on
      the market price of its common stock on the declaration date.




During
      the nine months ended September 30, 2008, restricted stock units totaling
      196,409 shares vested and 4,500 stock options were exercised and settled in
      shares.




On
      March
      29, 2008, restrictions on 48,169 shares of common stock issued to an officer
      in
      satisfaction of his employment agreement on March 31, 2007 expired. The fair
      value of such shares has been charged to stock based compensation over the
      requisite service period. Since these shares were issued from treasury, the
      excess of the average cost of these shares over the fair value of these shares
      on the grant date was charged to retained earnings at the conclusion of the
      requisite service period. Shares totaling 16,282 were issued back to the Company
      to settle employee tax liabilities as a result of this transaction, and these
      shares were returned to treasury.




On
      June
      17, 2008, the Board of Directors declared a dividend, payable June 30, 2008,
      to
      holders of Series B Preferred Stock in payment of dividends accumulated from
      January 1, 2008 through June 30, 2008; as a result, the Company issued 525,000
      shares of common stock, with a fair value of approximately $1,969,000 based
      on
      the market price of its common stock on the declaration date.




As
      a
      result of the foregoing activity, at September 30, 2008, the Company had
      outstanding 38,053,559 shares of common stock, with 923,108 held in
      treasury.


Page
          18


**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**




The
      following discussion should be read together with the accompanying Condensed
      Consolidated Financial Statements and notes thereto.




**Overview**




We
      are a
      pioneer in electronic trading solutions.  The NYFIX Marketplace is a global
      community of trading counterparties utilizing innovative services that optimize
      the business of trading, including trading workstations, middle office trade
      automation technologies and trade messaging services.  NYFIX Millennium
      provides the NYFIX Marketplace with enhanced methods of accessing
      liquidity.  We also provide value-added informational and analytic services
      and tools for measuring execution quality.  As a trusted business partner
      and service provider to investment managers, mutual fund, pension fund and
      hedge
      fund managers (the “Buy-Side”) and brokerage firms and banks (the “Sell-Side”),
      NYFIX enables low touch, low impact market access and transaction processing.




We
      operate businesses that design, produce and sell technology-based products
      and
      services to professional financial services organizations that are engaged
      in
      trading activities including traditional asset management (including the trading
      of those assets), proprietary trading, and/or the handling of client orders
      in
      the U.S. and international securities markets.




Many
      of
      our products and services utilize the FIX Protocol which is a messaging standard
      developed specifically for real-time electronic exchange of securities trading
      information.




We
      believe our innovative NYFIX products and services deliver value-added
      improvements in speed, quality of execution and cost efficiency by automating
      both the work flows at the user work station level and the interactive process
      of transmitting and executing orders between the Buy-Side and the Sell-Side,
      and
      through exchanges (e.g., NYSE, American Stock Exchange, Nasdaq and other
      exchanges), the OTC market, ATSs and electronic communication networks, or
      ECNs.




Sources
      of Revenue





Our
      revenues consist of subscription and maintenance fees, transaction fees, and
      product sales and services revenues. As a percentage of our total revenues
      during the nine months ended September 30, 2008, subscription and maintenance
      revenues accounted for 59%, transaction revenue accounted for 39%, and product
      sales and services revenue accounted for 2%.




Our
      subscription and maintenance revenues principally consist of revenues from
      contracts that provide for the use of our systems and our messaging channels,
      together with managed services. Subscription and maintenance revenue rates
      are
      fixed based on a contractual period of time, typically one to three years.
      Additional services, provided under schedules, or addenda to the contracts,
      are
      either co-terminus with the original contract or have provisions similar to
      the
      original contract.  Under the terms of the subscription contracts and
      addenda, clients are typically invoiced a flat periodic charge after initial
      installation and acceptance. Subscription and maintenance also includes
      maintenance contracts for software under separate, renewable maintenance
      contracts. Software related maintenance contracts are generally for a term
      of
      one year. Revenue related to these contracts and addenda is recognized over
      the
      term of the contract, addendum, or service period, on a straight-line
      basis.  We include within our subscription and maintenance revenue amounts
      we charge for connectivity to the NYFIX trading community. These include the
      various costs of connecting clients which include telecommunications,
      installation and maintenance of routers, network management software, and staff,
      and other costs related to the management of connectivity. The connectivity
      charges are recognized as the services are provided.




Our
      subscriptions and maintenance revenues are not directly affected by trading
      volumes; however, trading volumes do affect the revenues of our clients and
      this
      could affect their future purchases of our technology and services. Pricing
      pressures due to competition, failure to maintain revenues with existing clients
      and to sign agreements with new clients because of reductions in their
      technology spending, and consolidation in the financial sector could affect
      our
      revenues and profitability. Our costs associated with supporting the
      subscription and maintenance agreements are generally fixed and thus a loss
      of
      revenue would disproportionately impact profitability.




Transaction
      revenue primarily consists of per-share commissions charged to clients who
      send
      and receive a match and execution in our NYFIX Millennium ATS and clients to
      whom we provide execution and smart order routing technology, gateways to access
      markets and algorithmic trading ability in: (i) their own name, (ii) a third
      party name, or (iii) our name. Revenue for these services is generally invoiced
      monthly in arrears or is obtained through the clearing process within three
      days
      of the trade date, and is recognized on a trade date basis, in the period in
      which it is earned. Transaction revenue also includes the net interest spread
      on
      our matched book of securities borrowed/loaned.




Because
      commission revenues are earned on a per-transaction basis, such revenues
      fluctuate from period to period depending on (i) the volume of securities
      traded through our services in the United States and the United Kingdom and
      (ii) our commission rates. Commission revenues are primarily generated by
      orders delivered to us from direct computer-to-computer links driven by our
      clients routing technology, our FIXTrader order management system and other
      vendors’ products, as well as third party order routing networks and phone
      orders from our customers.


Page
          19




We
      believe that the factors that most influence our transaction volumes are the
      following:




·
            macro
                trends in the global equities markets that affect overall institutional
                equity trading activity;




·
            competitive
                pressure, including pricing, created by a proliferation of electronic
                execution competitors;




·
            potential
                changes in the U.S. market structure;




·
            new
                regulatory requirements or a failure to comply with existing regulatory
                requirements;




·
            service
                quality and availability;




·
            consolidation
                of broker-dealers or a decline in the number of hedge funds;
                and




·
            increased
                client demands for bandwidth and speed, requiring reinvestment in
                hardware
                and software.




Product
      sales and services are primarily comprised of FIX software licenses and
      professional services fees. This revenue is recognized when the software is
      delivered and accepted by the client and when other contractual obligations,
      including installation, if applicable, have been satisfied and collection of
      the
      resulting receivable is reasonably assured.




Cost
      of Revenue




Cost
      of
      revenue includes the following:




·
            Data
                center operating costs, including salaries, related to equipment,
                infrastructure and software supporting operations and the NYFIX
                Marketplace;




·
            Managed
                connectivity costs, including telecommunication and other costs incurred
                on behalf of clients, and costs to maintain the data centers, including
                depreciation and amortization of assets utilized by the data centers,
                which are recognized as either a cost of subscription and maintenance
                or
                cost of transaction revenue, as appropriate;




·
            Amortization
                expense of acquired intangible assets and capitalized software costs
                relating to the applicable revenue
                category;




·
            Developer
                and quality assurance personnel labor for client and product support
                of
                software products;




·
            The
                cost of leased subscription and service bureau equipment, which is
                depreciated over the estimated useful life of the equipment;
                and




·
            Execution
                and clearing costs to access various markets and exchanges and to
                process
                and settle transactions.




**Recent
      Developments**




*Discontinuance
      of the Fusion OMS Product*




In
      October 2007, we made a decision to discontinue our Fusion OMS product. In
      connection with this decision, we offered one-time termination benefits to
      affected employees. We recorded a restructuring charge of $0.7 million for
      the
      nine months ended September 30, 2008, which consisted of retention and severance
      costs. In
      addition, we incurred a loss during the nine months ended September 30, 2008
      of
      $0.8 million to support the Fusion OMS product during its wind-down phase.
      We
      completed the migration of clients off the Fusion OMS system as of June 30,
      2008
      and do not expect to incur any additional costs related to this product going
      forward.




In
      addition to generating subscription revenue for the Fusion OMS product, these
      clients also used our transaction and FIX Marketplace services. As compared
      to
      the three and nine months ended September 30, 2007, our overall revenues from
      Fusion OMS clients were down $3.6 million and $6.8 million during the three
      and
      nine months ended September 30, 2008, respectively, across all businesses.




*FIXCITY
      Acquisition*




On
      April
      4, 2008, we acquired 100% of the outstanding stock of FIXCITY. This
      acquisition reflects our strategy
      to aggregate liquidity for clients and to provide
      real-time information to make trading decisions. This acquisition also enhances
      our strategy of global expansion by adding significantly to our international client
      base .
      We have
      included the operating results of FIXCITY in our condensed consolidated
      financial statements since the date of acquisition, including revenues of $0.7
      million and $1.4 million during the three and nine months ended September 30,
      2008, respectively.


Page
          20





During
      the nine months ended September 30, 2008, we incurred integration related
      charges of $0.7 million, comprised of a $0.5 million write-off of capitalized
      software costs, as the technology acquired from FIXCITY replaced certain of
      our
      capitalized initiatives, as well as $0.2 million of third-party costs related
      to
      the integration of the technology platforms.




Pursuant
      to the terms of the share purchase agreement, we paid £3.3 million (or
      approximately $6.6 million) in cash and also agreed to pay an additional $1.0
      million in cash contingent on the successful completion of the integration
      of
      the existing FIXCITY and NYFIX technology platforms within six months of the
      closing date. In October 2008, we determined that the integration contingency
      was satisfied and made the $1.0 million payment. This payment will be recorded
      on our consolidated balance sheet in the fourth quarter as part of goodwill.
      In
      addition, the share purchase agreement provides the potential for cash earn-out
      payments in years 1, 2 and 3 following the acquisition totaling up to £3.7
      million (or approx. $6.6 million) if certain revenue targets are achieved,
      with  potential
      additional payments based on varying percentages of all such revenue if higher
      level target thresholds are achieved.




*Acquisition
      of Minority Interests*




In
      October 2007, we acquired the 20% interest in NYFIX Millennium that we did
      not
      already own.  The membership interests of the former minority members of
      NYFIX Millennium were converted into a right to receive an aggregate of $8.0
      million. As of September 30, 2008, we have paid substantially all of the $8.0
      million to the former minority members. We have previously included 100% of
      the
      operating results of NYFIX Millennium since inception in our consolidated
      financial statements.




*Euro
      Millennium*




Since
      the
      second quarter of 2007 we have incurred costs for Euro Millennium TM ,
      a
      multilateral trading facility for non displayed liquidity in pan-European listed
      cash equities. Euro Millennium TM was
      launched in March 2008 for matching U.K. listed equities and was recently
      expanded to match listed cash equities in other European markets, including
      Belgium, France, Germany and the Netherlands. To date revenues from Euro
      Millennium have been non-material as efforts continue to familiarize the
      European trading community with the benefits of dark trading and Euro Millennium
      in particular. We expect losses from Euro Millennium to continue during this
      introductory phase, including a loss of $2.0 million in the fourth quarter
      of
      2008.


Page
          21




**Results
        of Operations for the Three and Nine Month Periods Ended September 30, 2008
        and
        2007**
  The
        following table presents our consolidated results of operations for the periods
        indicated. These consolidated results of operations are not necessarily
        indicative of the consolidated results of operations that will be achieved
        in
        any future period.
 
 **Three Months Ended September 30,**
              
              **Nine Months Ended September 30,**(in thousands, except percentages)
              
              **2008**
              
              **% of**
                **revenue**
              
              **2007**
              
              **% of**
                **revenue**
              
              **2008**
              
              **% of**
                **revenue**
              
              **2007**
              
              **% of**
                **revenue****Revenue:**Subscription
                  and maintenance
              
              $
              17,747
              
              
              61%
              
              $
              16,556
              
              
              51%
              
              $
              52,772
              
              
              59%
              
              $
              50,301
              
              
              55%Transaction
              
              
              10,842
              
              
              37%
              
              
              15,389
              
              
              47%
              
              
              34,941
              
              
              39%
              
              
              38,757
              
              
              43%Product
                  sales and services
              
              
              586
              
              
              2%
              
              
              618
              
              
              2%
              
              
              1,491
              
              
              2%
              
              
              1,993
              
              
              2%Total
                  revenue
              
              
              29,175
              
              
              100%
              
              
              32,563
              
              
              100%
              
              
              89,204
              
              
              100%
              
              
              91,051
              
              
              100%**Cost
                  of revenue:**Subscription
                  and maintenance (1)
              
              
              7,985
              
              
              27%
              
              
              8,796
              
              
              27%
              
              
              23,457
              
              
              26%
              
              
              25,711
              
              
              28%Transaction
                  (1)
              
              
              5,595
              
              
              19%
              
              
              8,869
              
              
              27%
              
              
              17,649
              
              
              20%
              
              
              22,629
              
              
              25%Product
                  sales and services (1)
              
              
              86
              
              
              0%
              
              
              143
              
              
              0%
              
              
              254
              
              
              0%
              
              
              736
              
              
              1%Total
                  cost of revenue
              
              
              13,666
              
              
              47%
              
              
              17,808
              
              
              55%
              
              
              41,360
              
              
              46%
              
              
              49,076
              
              
              54%**Gross
                  profit**
              
              
              15,509
              
              
              53%
              
              
              14,755
              
              
              45%
              
              
              47,844
              
              
              54%
              
              
              41,975
              
              
              46%**Operating
                  expense:**Selling,
                  general and administrative (1)
              
              
              18,251
              
              
              63%
              
              
              21,995
              
              
              68%
              
              
              58,871
              
              
              66%
              
              
              59,224
              
              
              65%Depreciation
                  and amortization
              
              
              471
              
              
              2%
              
              
              379
              
              
              1%
              
              
              1,412
              
              
              2%
              
              
              1,039
              
              
              1%SEC
                  investigation, restatement and related expenses (1)
              
              
              170
              
              
              1%
              
              
              612
              
              
              2%
              
              
              438
              
              
              0%
              
              
              5,597
              
              
              6%Integration
                  charges
              
              
              139
              
              
              0%
              
              
              -
              
              
              0%
              
              
              735
              
              
              1%
              
              
              -
              
              
              0%Restructuring
                  charge
              
              
              -
              
              
              0%
              
              
              -
              
              
              0%
              
              
              216
              
              
              0%
              
              
              -
              
              
              0%Loss
                  from operations
              
              
              (3,522
              )
              
              -12%
              
              
              (8,231
              )
              
              -25%
              
              
              (13,828
              )
              
              -16%
              
              
              (23,885
              )
              
              -26%Interest
                  expense
              
              
              (123
              )
              
              0%
              
              
              (137
              )
              
              0%
              
              
              (489
              )
              
              -1%
              
              
              (399
              )
              
              0%Investment
                  income
              
              
              251
              
              
              1%
              
              
              975
              
              
              3%
              
              
              1,027
              
              
              1%
              
              
              3,299
              
              
              4%Other
                  income (expense), net
              
              
              -
              
              
              0%
              
              
              8
              
              
              0%
              
              
              -
              
              
              0%
              
              
              (4
              )
              
              0%Loss
                  before income tax provision
              
              
              (3,394
              )
              
              -12%
              
              
              (7,385
              )
              
              -23%
              
              
              (13,290
              )
              
              -16%
              
              
              (20,989
              )
              
              -23%Income
                  tax provision
              
              
              128
              
              
              0%
              
              
              47
              
              
              0%
              
              
              383
              
              
              0%
              
              
              141
              
              
              0%Net
                  loss
              
              
              (3,522
              )
              
              -12%
              
              
              (7,432
              )
              
              -23%
              
              
              (13,673
              )
              
              -15%
              
              
              (21,130
              )
              
              -23%Accumulated
                  preferred dividends
              
              
              (827
              )
              
              -3%
              
              
              (1,260
              )
              
              -4%
              
              
              (2,796
              )
              
              -3%
              
              
              (4,686
              )
              
              -5%Loss
                  applicable to common stockholders
              
              $
              (4,349
              )
              
              -15%
              
              $
              (8,692
              )
              
              -27%
              
              $
              (16,469
              )
              
              -18%
              
              $
              (25,816
              )
              
              -28%
 Percentage
          sub-totals may not add due to rounding.
 
 (1)
        Stock-based compensation included in the respective line items above
        follows:
 
 Cost
                  of revenue:Subscription
                  and maintenance
              
              $
              56
              
              
              
              
              $
              -
              
              
              
              
              $
              278
              
              
              
              
              $
              11Transaction
              
              
              31
              
              
              
              
              
              -
              
              
              
              
              
              122
              
              
              
              
              
              1Product
                  sales and services
              
              
              1
              
              
              
              
              
              -
              
              
              
              
              
              5
              
              
              
              
              
              -Selling,
                  general and administrative
              
              
              1,530
              
              
              
              
              
              25
              
              
              
              
              
              6,001
              
              
              
              
              
              248SEC
                  investigation, restatement and related expenses (a)
              
              
              -
              
              
              
              
              
              (317
              )
              
              
              
              
              -
              
              
              
              
              
              (118
              )$
              1,618
              
              
              
              
              $
              (292
              )
              
              
              
              $
              6,406
              
              
              
              
              $
              142
 
 (a)
        Relates to expiring options to be cash settled and extending the normal 90
        day
        post-termination exercise period.
  Page
            22
  **Revenue**
  The
        following table presents our components of revenue:
 
 **Three Months Ended**
                **September 30,**
              
              **Increase**
                **(Decrease)**
              
              **Nine Months Ended**
                **September 30,**
              
              **Increase**
                **(Decrease)**(in thousands, except percentages)
              
              **2008**
              
              **2007**
              
              **$**
              
              **%**
              
              **2008**
              
              **2007**
              
              **$**
              
              **%**Subscription
                  and maintenance
              
              $
              17,747
              
              $
              16,556
              
              $
              1,191
              
              
              7%
              
              $
              52,772
              
              $
              50,301
              
              $
              2,471
              
              
              5%Transaction
              
              
              10,842
              
              
              15,389
              
              
              (4,547
              )
              
              -30%
              
              
              34,941
              
              
              38,757
              
              
              (3,816
              )
              
              -10%Product
                  sales and services
              
              
              586
              
              
              618
              
              
              (32
              )
              
              -5%
              
              
              1,491
              
              
              1,993
              
              
              (502
              )
              
              -25%Total
                  revenue
              
              $
              29,175
              
              $
              32,563
              
              $
              (3,388
              )
              
              -10%
              
              $
              89,204
              
              $
              91,051
              
              $
              (1,847
              )
              
              -2%
  *Subscription
        and Maintenance*
  Subscription
        and maintenance revenue increased during the three months ended September
        30,
        2008, as compared to the three months ended September 30, 2007, primarily
        due to
        an increase in subscriptions (and related managed services) of order routing
        messaging channels offered by our FIX Division and the impact of the FIXCITY
        acquisition, offset in part by a decrease in subscriptions (and related managed
        services) for our OMS Division products. As of September 30, 2008, we had
        9,569
        billable direct order routing messaging channels in service, an increase
        of 23%
        over the 7,781 messaging channels in service at September 30, 2007, and an
        increase of 7% over the 8,960 messaging channels in service at June 30, 2008.
        The growth in our messaging channel subscription revenue during the three
        months
        ended September 30, 2008 was slowed by a decrease in revenues of $0.5 million
        attributable to former Fusion OMS clients, as compared to the three months
        ended
        September 30, 2007. FIXCITY, which was acquired in April 2008, contributed
        $0.7
        million in subscription revenues during the three months ended September
        30,
        2008. The decline in subscriptions (and related managed services) of our
        OMS
        Division products of $1.2 million, to $0.8 million for the three months ended
        September 30, 2008 from $2.0 million during the three months ended September
        30,
        2007, was due primarily to the discontinuation of our Fusion OMS product
        as well
        as cancellations from other desktop clients. OMS
        subscription revenue from former Fusion OMS clients decreased by $0.9 million
        during the three months ended September 30, 2008 as compared to the three
        months
        ended September 30, 2007. As a result of recent consolidations in the brokerage
        industry we expect the growth in subscription and maintenance revenues from
        order routing channels to be slowed in 2009 due to ongoing and expected
        cancellations of duplicate services from these clients. We also expect increased
        cancellations in order routing channels in 2009 from hedge fund closures.
        Revenue from r ecurring
        maintenance on licensed software decreased $0.1 million to $0.9 million for
        the
        three months ended September 30, 2008 compared to $1.0 million for the three
        months ended September 30, 2007.
  Subscription
        and maintenance revenue increased during the nine months ended September
        30,
        2008, as compared to the nine months ended September 30, 2007, primarily
        due to
        an increase in subscriptions (and related managed services) of order routing
        messaging channels offered by our FIX Division and the impact of the FIXCITY
        acquisition, offset in part by a decrease in subscriptions (and related managed
        services) of our OMS Division products. FIXCITY, which was acquired in April
        2008, contributed $1.4 million in subscription revenues during the nine months
        ended September 30, 2008. The growth in our messaging channel subscription
        and
        maintenance revenue during the nine months ended September 30, 2008 was slowed
        by a decrease in revenues of $1.1 million attributable to former Fusion OMS
        clients, as compared to the nine months ended September 30, 2007. The decline
        in
        subscriptions (and related managed services) of our OMS Division products
        of
        $4.5 million, to $3.8 million for the nine months ended September 30, 2008
        from
        $8.3 million during the nine months ended September 30, 2007, was due primarily
        to the discontinuation (during the second quarter of 2007) of certain floor
        application products, the discontinuation of our Fusion OMS product, as well
        as
        cancellations from other desktop clients. OMS
        subscription revenue from former Fusion OMS clients decreased by $2.3 million
        during the nine months ended September 30, 2008 as compared to the nine months
        ended September 30, 2007. Revenue from r ecurring
        maintenance on licensed software was $2.8 million in both the nine month
        periods
        ended September 30, 2008 and 2007.
  Page
            23
  *Transaction*
  Transaction
        revenue decreased during the three months ended September 30, 2008 primarily
        due
        to a decrease in commissions on trade executions. Commissions decreased $4.5
        million to $10.6 million during the three months ended September 30, 2008
        from
        $15.1 million during three months ended September 30, 2007, due primarily
        to a
        $3.1 million and $1.4 million decrease in commissions from Sell-Side and
        Buy-Side clients, respectively. The decrease from Sell-Side clients was
        primarily due to a decrease in the use of NYFIX’s algorithmic trading products
        and a decrease in commissions from direct market access services, offset
        in part
        by an increase in commissions from NYFIX Millennium. The decline in revenue
        from
        NYFIX’s algorithmic trading products and from OTC direct market access was
        primarily attributable to lower trading volumes from former Fusion OMS clients.
        Transaction revenue from former Fusion OMS clients decreased $2.2 million
        during
        the three months ended September 30, 2008 as compared to the three months
        ended
        September 30, 2007. Direct market access revenues (including associated
        pass-through charges) also declined for NYSE DOT transactions by $2.4 million
        primarily due to our decision to improve our margins by eliminating discounts
        for these services below cost for clients who do not generate valuable
        pass-through matches in NYFIX Millennium. The average daily matched volume
        in
        NYFIX Millennium increased 7% to 52.6 million shares during the three months
        ended September 30, 2008 from 49.1 million shares during the three months
        ended
        September 30, 2007. The decline in Buy-Side was due in part to the
        disintermediation of our direct Buy-Side client base by third-party algorithmic
        trading solution providers. Our securities lending business generated net
        interest spread on its matched book stock borrow/stock loan portfolio of
        $0.3
        million during the three month periods ended September 30, 2008 and September
        30, 2007. Recent market turmoil and consolidations in the brokerage industry
        could have a negative impact on our transaction revenues in 2009.
  Transaction
        revenue decreased during the nine months ended September 30, 2008 primarily
        due
        to a decrease in commissions on trade executions. Commissions decreased $3.6
        million to $34.2 million during the nine months ended September 30, 2008
        from
        $37.8 million during nine months ended September 30, 2007, primarily due
        to a
        $3.9 million decrease in commissions from Sell-Side clients, partially offset
        by
        a $0.3 million increase in commissions from Buy-Side clients. The decrease
        from
        Sell-Side clients was primarily due to a decrease in the use of
        NYFIX’s  algorithmic
        trading products and a decrease in commission from direct market access
        services, offset in part by an increase in commissions from NYFIX Millennium.
        The decline in revenue from NYFIX’s  algorithmic
        trading products and from OTC direct market access was primarily attributable
        to
        lower volumes from former Fusion OMS clients. Transaction revenue from former
        Fusion OMS clients decreased by $3.4 million during the nine months ended
        September 30, 2008 as compared to the nine months ended September 30, 2007.
        The
        additional decline in revenue for NYSE DOT direct market access services
        (including associated pass-through charges) of $4.7 million was primarily
        attributable to our decision to improve our margins by eliminating discounts
        for
        these services below cost for clients who do not generate valuable pass-through
        matches in NYFIX Millennium. The average daily matched volume in NYFIX
        Millennium during the nine months ended September 30, 2008 was 50.1 million
        shares, a 4.2% increase over the average of 48.1 million shares during the
        nine
        months ended September 30, 2007. Our securities lending business generated
        net
        interest spread on its matched book stock borrow/stock loan portfolio of
        $0.8
        million during the nine months ended September 30, 2008, compared to $1.0
        million during the nine months ended September 30, 2007. The decrease in
        net
        interest was principally due to tighter interest rate spreads.
  *Product
        Sales and Services*
  Product
        sales and services revenues were $0.6 million for both the three months ended
        September 30, 2008 and September 30, 2007. License fees for our FIX software
        products increased $0.1 million to $0.4 million during the three months ended
        September 30, 2008 as compared to $0.3 million for the same period in 2007,
        offset by a $0.1 million decrease in our professional services revenue, which
        includes FIX training, to $0.2 million during the three months ended September
        30, 2008 from $0.3 million for the same period in 2007.
  Product
        sales and services revenues decreased $0.5 million during the nine months
        ended
        September 30, 2008 primarily as a result of a decrease in sales of software
        licenses by our FIX Division. License fees for our FIX software products
        decreased $0.3 million to $0.9 million during the nine months ended September
        30, 2008 from $1.2 million for the same period in 2007, due primarily to
        customers subscribing to our FIX software products on a monthly basis instead
        of
        purchasing the licenses as a one-time upfront fee. Professional services
        revenue, including training, decreased by $0.2 million to $0.6 million during
        the nine months ended September 30, 2008 from $0.8 million for the same period
        in 2007.
  Page
            24
  **Costs
        and Expenses**
  ***Cost
        of Revenue***
  The
        following table presents our cost of revenue:
 
 **Three Months Ended**
                **September 30,**
              
              **Decrease**
              
              **Nine Months Ended**
                **September 30,**
              
              **Decrease**(in thousands, except percentages)
              
              **2008**
              
              **2007**
              
              **$**
              
              **%**
              
              **2008**
              
              **2007**
              
              **$**
              
              **%**Subscription
                  and maintenance
              
              $
              7,985
              
              $
              8,796
              
              $
              (811
              )
              
              -9%
              
              $
              23,457
              
              $
              25,711
              
              $
              (2,254
              )
              
              -9%Transaction
              
              
              5,595
              
              
              8,869
              
              
              (3,274
              )
              
              -37%
              
              
              17,649
              
              
              22,629
              
              
              (4,980
              )
              
              -22%Product
                  sales and services
              
              
              86
              
              
              143
              
              
              (57
              )
              
              -40%
              
              
              254
              
              
              736
              
              
              (482
              )
              
              -65%Total
                  cost of revenue
              
              $
              13,666
              
              $
              17,808
              
              $
              (4,142
              )
              
              -23%
              
              $
              41,360
              
              $
              49,076
              
              $
              (7,716
              )
              
              -16%
 
 *Subscription
        and Maintenance*
  Subscription
        and maintenance cost of revenue decreased during the three months ended
        September 30, 2008 primarily due to lower allocated labor costs of $0.9 million,
        and lower amortization of capitalized software costs and other intangible
        assets
        of $0.2 million, which were all impacted by the discontinuation the Fusion
        OMS
        product, as well as a decrease in telecommunication costs of $0.3 million.
        These
        decreases were partially offset by an increase of $0.6 million in recurring
        fees
        paid to third-party order management system providers for messaging channels
        with their clients. As a percentage of related revenue, these costs decreased
        to
        45% for the three months ended September 30, 2008 as compared to 53% for
        the
        three months ended September 30, 2007.
  Subscription
        and maintenance cost of revenue decreased during the nine months ended September
        30, 2008 primarily due to lower allocated labor costs of $1.6 million and
        lower
        amortization of capitalized software costs and other intangible assets of
        $0.9
        million, which were all impacted by the discontinuation of the Fusion OMS
        product, as well as a decrease in telecommunication costs of $0.7 million.
        These
        decreases were offset in part by an increase of $1.2 million in recurring
        fees
        paid to third-party order management system providers for messaging channels
        with their clients. As a percentage of related revenue, these costs decreased
        to
        44% for the nine months ended September 30, 2008 as compared to 51% for the
        nine
        months ended September 30, 2007.
  *Transaction*
  Transaction
        cost of revenue decreased during the three months ended September 30, 2008
        primarily due to lower execution and clearing fees of $4.2 million, offset
        in
        part by increases in certain costs due in part to the discontinuation of
        the
        Fusion OMS product, including: allocated data center costs of $0.4 million,
        allocated labor costs of $0.2 million, depreciation costs of $0.3 million,
        and
        market data fees of $0.1 million. The decrease in execution and clearing
        fees
        was primarily attributable to the reduced transaction revenue described above
        and a change in the revenue mix to higher margin services. As a percentage
        of
        related revenue, these costs decreased to 52% for the three months ended
        September 30, 2008, as compared to 58% for the three months ended September
        30,
        2007 **.**
  Transaction
        cost of revenue decreased during the nine months ended September 30, 2008
        primarily due to lower execution and clearing fees of $7.9 million, offset
        in
        part by increases in certain costs due in part to the discontinuation of
        the
        Fusion OMS product, including: allocated data center costs of $0.9 million,
        depreciation costs of $0.8 million, allocated labor costs of $0.6 million,
        market data fees of $0.4 million, communication costs of $0.1 million and
        software maintenance of $0.1 million. The decrease in execution and clearing
        fees was primarily due to a change in the revenue mix to higher margin services
        and a rebate received during the first quarter of $0.5 million on clearing
        services used. Included in execution fees during the nine months ended September
        30, 2007 was $1.9 million of linkage
        fees from the NYSE to route orders to other market centers which we were
        not
        able to pass through to our DOT direct market access clients due to difficulties
        in capturing trade information. As
        a
        percentage of related revenue, these costs decreased to 51% for the nine
        months
        ended September 30, 2008, as compared to 58% for the nine months ended September
        30, 2007.
  *Product
        Sales and Services*
  Product
        sales and services cost of revenues decreased $0.1 million during the three
        months ended September 30, 2008 as a result of lower amortization of capitalized
        software costs. As a percentage of related revenue these costs decreased
        to 15%
        for the three months ended September 30, 2008 as compared to 23% for the
        same
        period of 2007.
  Page
            25
  Product
        sales and services cost of revenue decreased during the nine months ended
        September 30, 2008 due to lower intangible asset amortization of $0.4 million
        as
        a result of certain intangible assets becoming fully amortized in the second
        quarter of 2007 and lower amortization of capitalized software costs of $0.1
        million. As a percentage of related revenue these costs decreased to 17%
        for the
        nine months ended September 30, 2008 as compared to 37% for the same period
        of
        2007.
  ***Selling,
        General and Administrative Expenses (SG&A)***
  The following table presents the components of our selling, general and
        administrative expense :
  **Three Months Ended**
                **September 30,**
              
              **Increase (Decrease)**
              
              **Nine Months Ended**
                **September 30,**
              
              **Increase (Decrease)**(in thousands, except percentages)
              
              **2008**
              ****
              **2007**
              ****
              **$**
              ****
              **%**
              ****
              **2008**
              ****
              **2007**
              ****
              **$**
              ****
              **%**Compensation
                  and related
              
              $
              9,048
              
              $
              9,112
              
              $
              (64
              )
              
              -1%
              
              $
              28,292
              
              $
              25,612
              
              $
              2,680
              
              
              10%Occupancy
                  and related
              
              
              949
              
              
              1,159
              
              
              (210
              )
              
              -18%
              
              
              3,280
              
              
              3,065
              
              
              215
              
              
              7%Marketing,
                  travel and entertainment
              
              
              1,063
              
              
              1,337
              
              
              (274
              )
              
              -20%
              
              
              3,514
              
              
              3,494
              
              
              20
              
              
              1%Professional
                  fees (including consulting)
              
              
              2,005
              
              
              3,924
              
              
              (1,919
              )
              
              -49%
              
              
              6,088
              
              
              10,768
              
              
              (4,680
              )
              
              -43%General
                  and other
              
              
              1,633
              
              
              2,546
              
              
              (913
              )
              
              -36%
              
              
              4,498
              
              
              6,152
              
              
              (1,654
              )
              
              -27%Stock-based
                  compensation
              
              
              1,538
              
              
              24
              
              
              1,514
              
              
              6308%
              
              
              6,009
              
              
              247
              
              
              5,762
              
              
              2333%Transitional
                  rebuilding and remediation
              
              
              -
              
              
              1,950
              
              
              (1,950
              )
              
              -100%
              
              
              212
              
              
              5,411
              
              
              (5,199
              )
              
              -96%Transitional
                  employment costs
              
              
              -
              
              
              595
              
              
              (595
              )
              
              -100%
              
              
              243
              
              
              2,483
              
              
              (2,240
              )
              
              -90%Euro
                  Millennium costs
              
              
              2,015
              
              
              1,348
              
              
              667
              
              
              49%
              
              
              6,735
              
              
              1,992
              
              
              4,743
              
              
              238%Total
                  SG&A
              
              $
              18,251
              
              $
              21,995
              
              $
              (3,744
              )
              
              -17%
              
              $
              58,871
              
              $
              59,224
              
              
              (353
              )
              
              -1%Percent
                  of total revenue
              
              
              63%
              
              
              68%
              
              
              
              
              
              
              
              
              66%
              
              
              65%
 
 Due
        to
        the fact that we have completed our restatement and relisting initiatives,
        as
        well as our transitional programs, we have increased our focus on improving
        our
        margins and are more actively managing our cost structure. We realized
        significant achievements in these efforts during the first nine months of
        2008.
        Excluding stock-based compensation, Euro Millennium and transitional costs,
        SG&A for the three and nine months of 2008 decreased by 19% and 7%,
        respectively over the same periods of 2007, due primarily to reduced costs
        for
        outside professionals (e.g. legal and accounting), consultants and various
        other
        expenses.
  *Compensation
        and Related*
  Compensation
        and related costs were comparable for the three months ended September 30,
        2008
        and 2007, primarily reflecting the net effects of cost reductions associated
        with the discontinuation of the Fusion OMS product of $1.0 million and new
        compensation and related costs of $0.4 million associated with our recently
        acquired FIXCITY subsidiary, and increases in marketing hires and executive
        severance costs.
 
 The
        increase in the portion of compensation and related costs included in SG&A
        for the nine months ended September 30, 2008 was primarily due to increases
        of
        $3.7 million associated with investments in sales, account management and
        marketing resources, new compensation costs of $0.6 million associated with
        our
        recently acquired FIXCITY subsidiary and $0.9 million of employee termination
        costs associated with the approximate 10% reduction of our staff in June
        2008,
        as well as other executive severance costs. These increases for the nine
        months
        ended September 30, 2008 were offset in part by cost reductions associated
        with
        the discontinuation of the Fusion OMS product of $2.4 million and other cost
        reductions.
  *Occupancy
        and Related*
  The
        decrease in occupancy and related costs for the three months ended September
        30,
        2008 was primarily due to $0.3 million of rent tax credits received for our
        100
        Wall street office location as a result of participating in the Lower Manhattan
        Revitalization Program. The increase in occupancy and related costs for the
        nine
        months ended September 30, 2008, was primarily due to additional rent expense
        associated with expanding our office space in both our New York and London
        locations partially offset by rent tax credits discussed above.
  *Marketing,
        Travel and Entertainment*
  The
        decrease in marketing, travel and entertainment expenses for the three months
        ended September 30, 2008 primarily reflects a decrease in travel and
        entertainment costs as a result of the timing of sponsored events and a
        reduction in general corporate travel. Marketing, travel and entertainment
        expenses for the nine months ended September 30, 2008 were comparable to
        the
        same period in 2007.
  Page
            26
  *Professional
        Fees (including consulting)*
  The
        decrease in professional fees incurred for the three and nine months ended
        September 30, 2008, was primarily due to decreases in consulting fees and
        external professional fees.  Consulting fees decreased $1.6 million and
        $2.8 million for the three and nine months ended September 30, 2008,
        respectively, primarily due to the reduction in consultants used for
        organizational development, operations, marketing and strategic initiatives.
        Professional fees declined $0.3 million and $1.9 million for the three and
        nine
        months ended September 30, 2008, respectively primarily due to decreases
        in
        external costs for internal controls compliance and outside legal fees.
        Consultants and outside professionals were engaged more in 2007 to supplement
        day-to-day activities while management was addressing significant matters
        such
        as the restatements, re-listing on Nasdaq, historical legal issues and
        remediation. Consulting fees included in this category do not include the
        time
        spent by outside consultants and advisors on the SEC investigation, restatements
        and related issues as such costs have been separately categorized
        below.
  *General
        and Other*
  The
        decrease in general and other expenses for the three and nine months ended
        September 30, 2008 as compared to the same period of 2007 was primarily due
        to
        decreases in recruiting and temporary administrative help, partially offset
        by
        higher software maintenance for our internal systems.
  *Stock-based
        Compensation*
  The
        increase in stock-based compensation included in SG&A for the three and nine
        months ended September 30, 2008 was primarily due to significant grants of
        stock
        options and restricted stock units made during the fourth quarter of 2007
        and
        first nine months of 2008, following the adoption of the 2007 Omnibus Equity
        Compensation Plan. These grants were intended to be an up-front, multi-year
        program to assist in retention and to further promote alignment of the interests
        of our employees with those of our stockholders. Stock-compensation expense
        (including the amount recorded in cost of revenue) is expected to be
        approximately $1.6 million for the fourth quarter of 2008. This amount may
        vary,
        however, depending on additional grants or cancellations and whether performance
        awards actually vest.
  *Transitional
        Rebuilding and Remediation Costs*
  Transitional
        rebuilding and remediation costs reflect the impact of a company-wide,
        Board-approved effort in 2007, following the $75 million preferred stock
        investment by Warburg Pincus, to remediate deficiencies involving critical
        operational systems and processes, including technology infrastructure and
        management information systems. As a result of this effort, during 2007,
        we
        remediated our lab environment, data replication and back-up, network
        monitoring, application security and we enabled more timely and detailed
        internal and external financial reporting. These efforts also addressed certain
        historical administrative issues such as reorganizing certain subsidiaries
        and
        initiating new compensation programs which were rolled out in October 2007.
        During the nine months ended September 30, 2008, we incurred $0.2 million
        of
        such costs. We do not expect to incur any additional costs due to the fact
        that
        we have completed our last project under this program in the second quarter
        of
        2008.
  *Transitional
        Employment Costs*
  Transitional
        employment costs reflect our efforts to build
        critical teams, retain key employees, and remediate certain skill gaps. These
        transitional costs, primarily consisting of sign-on bonuses, retention bonuses
        and severance and other termination benefits were expensed over the required
        service period. During
        the nine months ended September 30, 2008, we incurred $0.2 million of such
        costs. We do
        not expect to incur any additional costs due to the fact that the program
        expired at the end of the second quarter of 2008.
  *Euro
        Millennium Costs*
  Since
        second quarter 2007, we have incurred costs for Euro Millennium, a neutral
        dark
        pool of liquidity for pan-European listed cash equities. These costs include
        compensation and related costs, consulting, marketing and travel related
        costs. To
        date
        revenues from Euro Millennium have been non-material as efforts continue
        to
        familiarize the European trading community with the benefits of dark trading
        and
        Euro Millennium in particular. We expect losses from Euro Millennium to continue
        during this introductory phase, including a loss of $2.0 million in the fourth
        quarter of 2008. Once
        this initiative exits its introductory phase and to the extent that Euro
        Millennium generates consistent revenues, we will include the specific costs
        associated with Euro Millennium in transaction cost of revenue and the various
        SG&A categories detailed above.
  Page
            27
  ***Other
        Operating Expenses***
  Other
        operating expenses consist of the following:
  **Three Months Ended**
                **September 30,**
              
              **Increase**
                **(Decrease)**
              
              **Nine Months Ended**
                **September 30,**
              
              **Increase**
                **(Decrease)**(in thousands)
              
              **2008**
              
              **2007**
              
              **$**
              
              **2008**
              
              **2007**
              
              **$**Depreciation
                  and amortization
              
              $
              471
              
              $
              379
              
              $
              92
              
              $
              1,412
              
              $
              1,039
              
              $
              373SEC
                  investigation, restatement and related expenses
              
              
              170
              
              
              612
              
              
              (442
              )
              
              438
              
              
              5,597
              
              
              (5,159
              )Integration
                  charges
              
              
              139
              
              
              -
              
              
              139
              
              
              735
              
              
              -
              
              
              735Restructuring
                  charge
              
              
              -
              
              
              -
              
              
              -
              
              
              216
              
              
              -
              
              
              216
  *Depreciation
        and Amortization*
  The
        increase in the portion of depreciation and amortization included in SG&A
        for the three and
        nine months
        ended September 30, 2008 was due to increased general overhead capital
        expenditures during 2007.
  *SEC
        Investigation, Restatement and Related Expenses*
  During
        the three and nine months ended September 30, 2008, we incurred costs relating
        to the stock option investigation and subpoenas, a grand jury subpoena related
        to our stock option grants, related shareholder derivative litigation and
        the
        pursuit of insurance recoveries. The costs incurred during the three and
        nine
        months ended September 30, 2007 also included costs for related financial
        restatements and for settling expired options. These costs include outside
        counsel and auditors, contract attorneys, forensic accountants and other
        consultants. These costs do not include any portion of time that our employees
        have dedicated to these matters. We will continue to incur expenses associated
        with these matters until they are resolved. The amount of such expenses will
        likely vary and may be material.
  The
        decrease in these costs during the three and nine months ended September
        30,
        2008 reflects
        the filing of our Annual Report on Form 10-K for the fiscal year ended December
        31, 2005 in March of 2007 following the restatement of our consolidated
        financial statements as a result of the SEC investigation into prior stock
        option grants and related restatements.
  To
        date,
        we have received an aggregate of $10.1 million in advances from our three
        former
        director and officer insurance carriers for fees incurred in defense of the
        SEC
        investigation into our historical stock option activity, as well as related
        litigation expenses. Of this amount, $10 million reflects the respective
        individual limits of two of these carriers. As these amounts can be recovered
        by
        the carriers in certain circumstances, we have deferred recognition of these
        proceeds in its operating results until further progress is made in resolving
        these contingencies. We are also pursuing reimbursement for additional amounts
        from the third carrier under a policy with a limit of $5.0 million.
  *Integration
        Charges*
  During
        the three and nine months ended September 30, 2008, we incurred integration
        charges related to the acquisition of FIXCITY in April 2008. These costs
        include
        $0.1 million and $0.2 million of third party consulting costs to integrate
        the
        acquired technology platform in the three and nine month periods, respectively
        and a $0.5 million write-off of capitalized software costs in the nine month
        period as the technology acquired from FIXCITY replaced certain of our
        capitalized initiatives. We expect to incur $0.2 million of additional
        third-party integration costs during the fourth quarter of 2008.
  *Restructuring
        Charge*
  The
        restructuring charge for the nine months ended September 30, 2008 reflects
        employment costs of $0.7 million related to the discontinuance of our Fusion
        OMS
        product, offset by a $0.5 million reversal of amounts previously recorded
        as
        restructuring costs as a result of the termination
        of our lease and corresponding sublease of office space previously occupied
        in
        Stamford.
  We
        completed the migration of clients off of the Fusion OMS system in June 2008
        and
        do not expect to incur any additional restructuring charge related to this
        product going forward.
  Page
            28
  **Non-operating
        Income (Expense)**
  Non-operating
        income (expense) items are as follows for the periods indicated:
  **Three Months Ended**
                **September 30,**
              
              **Decrease**
              
              **Nine Months Ended**
                **September 30,**
              
              **Increase**
                **(Decrease)**(in thousands)
              
              **2008**
              
              **2007**
              
              **$**
              
              **2008**
              
              **2007**
              
              **$**Interest
                  expense
              
              $
              (123
              )
              $
              (137
              )
              $
              (14
              )
              $
              (489
              )
              $
              (399
              )
              $
              90Investment
                  income
              
              
              251
              
              
              975
              
              
              (724
              )
              
              1,027
              
              
              3,299
              
              
              (2,272
              )Other
                  income (expense), net
              
              
              -
              
              
              8
              
              
              (8
              )
              
              -
              
              
              (4
              )
              
              4
  *Interest* *Expense* **
  The
        increase in interest expense for the nine months ended September 30, 2008
        was
        primarily attributable to additional interest incurred on the additional
        $2.5
        million convertible note issued in October 2007.
  *Investment* *Income*
  The
        decrease in investment income for the three and nine months ended September
        30,
        2008 reflected lower average cash balances invested and lower interest rates
        during the period.
  **Income
        Tax Provisi** **on**
  The
        income tax provisions for the three and nine months ended September 30, 2008
        were solely attributable to the impact of deducting goodwill related to the
        NYFIX Millennium acquisition in our tax filings. The income tax provisions
        for
        the three and nine months ended September 30, 2007 were solely attributable
        to
        the impact of deducting goodwill related to the Renaissance acquisition in
        our
        tax filings. All other tax effects during the three and nine months ended
        September 30, 2008 and 2007 have been netted out in our deferred tax asset
        valuation reflecting our view that historical pre-tax book income and historical
        income for tax purposes are not sufficient to support a conclusion that the
        value of our net deferred tax assets are more likely than not to be realized.
        Until we achieve and sustain profitability, we plan to maintain a valuation
        allowance on our net deferred tax assets.
  **Liquidity
        and Capital Resources**
  We
        derive
        our liquidity and capital resources primarily from issuances of stock and
        from
        long-term borrowings. At September 30, 2008, we had cash and cash equivalents
        of
        $52.5 million, a reduction from our balance at December 31, 2007, principally
        due to the timing of accrued employee compensation payments for 2007, including
        annual incentive and retention related bonuses, commissions, severance and
        employee benefit obligations, payments to the former minority owners of NYFIX
        Millennium to acquire their interests, as well as payment for the acquisition
        of
        FIXCITY. The balance of cash and cash equivalents at September 30, 2008 was,
        however, comparable to the balance of $52.2 million at June 30, 2008. We
        believe
        resources available at September 30, 2008 will be sufficient to finance our
        current investing and operating needs as well as the net capital requirements
        of
        our broker-dealer subsidiaries for at least the next twelve months.
  Noting
        the current turmoil in the debt markets, in the event that we are unable
        to
        secure refinancing for the $10 million in convertible notes currently
        outstanding when such notes come due on December 31, 2009, we may be required
        to
        repay such debt out of existing cash resources or operating cash flow. In
        addition, to the extent that we choose to pursue a strategic acquisition
        and are
        unable to secure adequate external financing, we may need to raise additional
        outside funding, including through issuing additional equity, which could
        dilute
        existing stockholders.
  At
        September 30, 2008, $39.3 million of our total cash and cash equivalents
        were
        held in our regulated subsidiaries, which resulted in our excess regulatory
        capital, as detailed below.
  Page
            29
 
 **As of****September 30,**
              
              **December 31,**(in thousands)
              
              **2008**
              
              **2007**Cash
                  and cash equivalents
              
              $
              52,502
              
              $
              75,657
 
 **Nine Months Ended September 30,**(in thousands)
              
              **2008**
              
              **2007**Net
                  cash used in operating activities
              
              $
              (1,154
              )
              $
              (15,610
              )Net
                  cash used in investing activities
              
              
              (20,406
              )
              
              (12,630
              )Net
                  cash used in financing activities
              
              
              (1,102
              )
              
              (1,001
              )Effect
                  of exchange rate changes on cash
              
              
              (493
              )
              
              123Net
                  decrease in cash and cash equivalents
              
              $
              (23,155
              )
              $
              (29,118
              )
  *Operating
        Activities*
  The
        following table sets forth our net loss adjusted for non-cash items, such
        as
        depreciation, amortization, deferred taxes, and stock-based compensation,
        and
        the effect on cash used in operating activities of changes in working capital
        and other operating accounts between periods.
  **Nine Months Ended September 30,**(in
                  thousands)
              
              **2008**
              
              **2007**Net
                  loss adjusted for non-cash items
              
              $
              1,278
              
              $
              (12,896
              )Effect
                  of changes in working capital and other operating accounts
              
              
              (2,432
              )
              
              (2,714
              )Net
                  cash used in operating activities
              
              $
              (1,154
              )
              $
              (15,610
              )
  Changes
        in working capital and other operating accounts affected cash flows during
        the
        nine months ended September 30, 2008 primarily as a result of a decrease
        in the
        level of accounts payable and accrued expenses between periods, primarily
        from
        the net effect of the timing of accrued employee compensation payments for
        2007
        including annual incentive and retention related bonuses, commissions, severance
        and employee benefit obligations, and the receipt of deferred insurance
        proceeds, as well as an increase in net clearing assets due to the timing
        of
        settlement obligations.
  *Broker-Dealer
        Operations*
  Clearing
        assets reflect amounts on hand to support our ability to settle the transactions
        of NYFIX Millennium, NYFIX Securities and NYFIX International, such as
        receivables from clearing organizations and firms and deposits with clearing
        organizations and firms, as well as balances to support our matched-book
        stock
        borrow/stock loan business. Our matched-book balances include offsetting
        stock
        borrowed and stock loaned and securities failed-to-deliver and securities
        failed-to-receive. At September 30, 2008, the net balance for clearing assets
        and clearing liabilities was a net receivable of $3.0 million.
  Securities
        borrowed and securities loaned are recorded at the amount of cash collateral
        provided for securities borrowed transactions and received for securities
        loaned
        transactions, plus accrued interest. We monitor the market value of securities
        borrowed and loaned on a daily basis with additional collateral obtained
        or
        refunded as necessary. At September 30, 2008, clearing assets include stock
        borrows of $298.2 million and clearing liabilities include stock loans of
        $298.6
        million.
  NYFIX
        Millennium and NYFIX Securities are U.S. registered broker-dealers required
        to
        maintain levels of regulatory net capital under Rule 15c3-1 of the Exchange
        Act.
        NYFIX Securities’ DTCC membership, used to self-clear securities transactions,
        requires it to maintain $10 million in excess of its required net capital.
        NYFIX
        International and FIXCITY are registered firms with the FSA, required to
        maintain the greater of the base capital resources requirement of €730,000 and € 50,000,
        respectively, or the variable capital resources requirement, which is made
        up of
        credit risk, market risk and fixed overhead (equal to three months average
        expenditures) requirements. At September 30, 2008, the aggregate regulatory
        net
        capital/resources of our regulated subsidiaries in the United States and
        the
        United Kingdom were $33.3 million, an excess of $21.1 million over our aggregate
        requirement of $12.2 million (including the $10 million excess required by
        DTCC
        described above).
  Page
            30
  *Investing
        Activities*
  Investments
        in current technology to maintain our infrastructure and to enhance our products
        remain an important requirement for our available cash resources.
  Net
        cash
        used in investing activities for the nine months ended September 30, 2008
        was
        $20.4 million. This consisted of capital expenditures for property and
        equipment, principally for data center equipment and software, of $4.3 million,
        capitalized software development costs of $4.2 million, $7.2 million in payments
        to the former minority owners of NYFIX Millennium to acquire their interests
        and
        $6.9 million for the acquisition of FIXCITY, net of cash acquired. These
        payments were partially offset by $2.1 million received from GL in payment
        of an
        earn out related to the sale of NYFIX Overseas in August 2006 net of
        amounts paid to the NYFIX Overseas management team .
        In
        October 2008, we determined that the integration contingency related to the
        acquisition of FIXCITY was satisfied and paid $1.0 million pursuant to the
        terms
        of the share purchase agreement.
  Net
        cash
        used in investing activities for the nine months ended September 30, 2007
        was
        $12.6 million. This consisted of capital expenditures for property and
        equipment, principally for data center equipment and software, of $8.4 million,
        capitalized software development costs of $2.9 million and $1.3 million paid
        to
        GL in settlement of working capital adjustments resulting from its purchase
        of
        NYFIX Overseas.
  *Financing
        Activities*
  Our
        financing activities primarily consist of long-term debt issued for working
        capital purposes, capital lease obligations used for equipment purchases,
        and
        issuances of capital stock for general corporate purposes and business
        development activities. At
        September 30, 2008, we had long-term debt and capital lease obligations
        outstanding aggregating $13.2 million (including current portions).
  At
        September 30, 2008, we had outstanding two convertible notes aggregating
        $10.0
        million with substantially similar terms to the same lender. The convertible
        notes incur interest at a rate of 5% and are due in December 2009. At September
        30, 2008, the price at which the lender could convert the convertible notes
        into
        shares of our common stock was $5.63 per share. The conversion price may
        be
        reduced if we issue shares of common stock at a price below the conversion
        price
        in effect, excluding stock option exercises, the settlement of obligations
        outstanding as of the date of the convertible note and other transactions
        previously approved by our Board of Directors.
  Net
        cash
        used in financing activities for the nine months ended September 30, 2008
        and
        2007 was $1.1 million and $1.0 million, respectively, consisting primarily
        of
        principal payments under capital lease obligations.
  **Commitments
        and Contingencies**
  There
        are
        various lawsuits and claims pending against us as well as ongoing SEC and
        United
        States Attorney’s Office investigations into our accounting for stock option
        grants and an SEC investigation into our accounting for the losses incurred
        by
        NYFIX Millennium. We are currently unable to predict the outcomes and reasonably
        estimate the amounts of loss, if any, with respect to these matters. With
        respect to certain of these matters, we could be subject to penalties, fines
        or
        regulatory sanctions or claims by current and former officers, directors
        or
        employees for indemnification of costs or losses they may incur and such
        amounts, individually or collectively, could have a material impact on our
        financial condition. In addition, other actions may be brought against us
        related to these matters.
  See
        Note
        11 to the Condensed Consolidated Financial Statements included in this Quarterly
        Report on Form 10-Q and Note 9 to our Consolidated Financial Statements for
        the
        fiscal year ended December 31, 2007 filed with our 2007 Form 10-K for a
        description of our commitments and contingencies.
  **Seasonality
        and Inflation**
  We
        believe that our operations have not been significantly affected by seasonality
        or inflation.
  **Off-balance
        Sheet Arrangements**
  We
        have
        no material off-balance sheet arrangements, as defined under SEC rules, other
        than those related to the contingent obligations under the convertible notes
        as
        described above and under the terms of our Series B Preferred Stock as described
        in our 2007 Form 10-K.
  **Critical
        Accounting Policies and Estimates**
  The
        discussion and analysis of our financial condition and results of operations
        are
        based on our condensed consolidated financial statements, which have been
        prepared in accordance with GAAP. The preparation of these financial statements
        requires us to make estimates and judgments that affect the reported amounts
        of
        assets, liabilities, revenues, and expenses and related disclosures of
        contingent assets and liabilities. On an on-going basis, we evaluate our
        estimates, including our allowance for doubtful accounts, inventory valuation
        and obsolescence, long-lived tangible and intangible assets, income taxes,
        and
        contingencies and litigation. We base our estimates on historical experience
        and
        on various other assumptions that are believed to be reasonable under the
        circumstances, the results of which form the basis for making judgments about
        the carrying values of assets and liabilities that are not readily apparent
        from
        other sources. Actual results may differ from these estimates under different
        assumptions or conditions. In our 2007 10-K, we identified and disclosed
        critical accounting policies, which included revenue recognition, allowance
        for
        doubtful accounts, property and equipment, acquisitions and goodwill,
        capitalized software costs, long-lived assets, income taxes, contingencies
        and
        stock-based compensation. These critical accounting policies affect significant
        judgments and estimates used in the preparation of our financial statements.
        We
        reviewed our policies in conjunction with the preparation of this report
        and
        have determined that those critical policies remain and have not changed
        since
        December 31, 2007.
  Page
            31
  **Item
        3. Quantitative and Qualitative Disclosures About Market
        Risk**
  There
        have been no material changes in our exposure to market risk during the nine
        months ended September 30, 2008, from those described in Part II, Item 7A,
        Quantitative and Qualitative Disclosures About Market Risk, included in our
        2007
        Form 10-K.
  **Item
        4. Controls and Procedures**
  ***Evaluation
        of Disclosure Controls and Procedures***
  In
        connection with the preparation of this Quarterly Report on Form 10-Q, our
        management, with the participation of our Chief Executive Officer and our
        Chief
        Financial Officer, carried out an evaluation of the effectiveness of the
        design
        and operation of our disclosure controls and procedures as of September 30,
        2008. Disclosure controls and procedures, as defined in Rules 13a-15(e) and
        15d-15(e) under the Exchange Act, are controls and other procedures that
        are
        designed to ensure that the information that we are required to disclose
        in the
        reports that we file or submit under the Exchange Act is recorded, processed,
        summarized and reported within the time periods specified in the SEC’s Rules and
        Forms, and that such information is accumulated and communicated to our
        management, including our Chief Executive Officer and Chief Financial Officer,
        as appropriate to allow timely decisions regarding required disclosure.
  As
        disclosed in our 2007 Form 10-K, management and our independent registered
        public accounting firm identified material weaknesses in the
        following internal controls over:
  ·
              controls
                  related to revenues from historical subscriptions, and
  ·
              controls
                  related to the acquisition, tracking and disposition of property
                  and
                  equipment.
  A
        material weakness is a deficiency or a combination of deficiencies in internal
        control over financial reporting, such that there is a reasonable possibility
        that a material misstatement of the company’s annual or interim financial
        statements will not be prevented or detected on a timely basis. Material
        weaknesses in internal controls may also constitute deficiencies in our
        disclosure controls and procedures.
  As
        discussed below, the material weakness over the controls related to the
        acquisition, tracking and disposition of property and equipment was remediated
        during the quarter ended September 30, 2008. However, based on the material
        weakness in our controls related to revenues from historical subscriptions,
        our
        Chief Executive Officer and Chief Financial Officer concluded that our
        disclosure controls and procedures were not effective at the reasonable
        assurance level as of September 30, 2008.
  ***Changes
        in Internal Control over Financial Reporting***
  During
        the quarter ended September 30, 2008, we performed certain procedures, including
        an inventory of our assets and a reconciliation of such assets to our books
        and
        records that enabled us to declare that we have remediated the material weakness
        affecting the controls related to the acquisition, tracking and disposition
        of
        property and equipment. There was no other change in our internal control
        over
        financial reporting that occurred during the quarter ended September 30,
        2008
        that has materially affected, or is reasonably likely to materially affect
        our
        internal control over financial reporting.
  For
        the
        remaining material weakness as of September 30, 2008 related to the controls
        affecting revenue from historical subscriptions, we are currently working
        on a
        corrective action plan. Although we have completed a number of significant
        milestones in this plan, additional work remains. While we believe our ongoing
        efforts have improved our internal control over financial reporting, we have
        not
        completed the redesign and/or implementation of all necessary procedures
        and
        controls or our documentation and testing of the processes. Accordingly,
        we will
        continue to perform the interim measures described below and monitor the
        effectiveness of our internal control over financial reporting in the areas
        impacted by the material weakness discussed above.
  **Interim
        Measures to Ensure the Accuracy of Financial Reporting**
  Management,
        with oversight from our Audit Committee, has performed expanded and compensating
        measures to help ensure the accuracy of our financial reporting until such
        time
        as we are able to remedy our remaining material weakness. Such measures
        included, among other things:
  ·
              expansion
                  of our period-end closing
                  procedures;
  ·
              enhanced
                  monitoring and communications;
  ·
              additional
                  analyses and cross team reviews;
  ·
              the
                  dedication of significant internal resources;
                  and
  ·
              additional
                  top-level management reviews of financial information and related
                  disclosures.
  Page
            32
  As
        a
        result of these expanded and compensating procedures, we concluded that the
        consolidated financial statements included in this Quarterly Report on Form
        10-Q
        present fairly, in all material respects, our financial position, results
        of
        operations and cash flows for the periods presented in conformity with GAAP.
  The
        certifications of our principal executive officer and principal financial
        officer required in accordance with Section 302 of the Sarbanes-Oxley Act
        of
        2002 are attached as exhibits to this Quarterly Report on Form 10-Q. The
        disclosures set forth in this Item 4 contain information concerning the
        evaluation of our disclosure controls and procedures and our internal control
        over financial reporting, referred to in the certifications. Those
        certifications should be read in conjunction with this Item 4 for a complete
        understanding of the matters covered by the certifications.
  Page
            33
  **PART
        II — OTHER INFORMATION**
  **Item
        1. Legal Proceedings**
  As
        disclosed in our 2007 Form 10-K, we are named as a nominal defendant in two
        shareholder derivative actions, one pending in Connecticut Superior Court
        (the
        "Consolidated State Suit") and one currently on appeal from the United States
        District Court for the District of Connecticut (the "Consolidated Federal
        Suit"). These actions also name as defendants a number of our former officers
        and directors, including a former Chairman and Chief Executive Officer, another
        former Chief Executive Officer and director, a former Chief Information Officer,
        two former Chief Financial Officers, our former General Counsel and the former
        Executive Vice President and President of NYFIX Millennium. These actions
        demand
        unspecified money damages, ask for an accounting and seek rescission of
        allegedly misdated options based on, among other things, alleged breaches
        of
        fiduciary duty, unjust enrichment and breach of contract. Defendants filed
        motions to dismiss both of these matters.  Neither the date of the
        Connecticut Superior Court's ruling on the motion to dismiss the Consolidated
        State Suit, nor the outcome of that suit, can be predicted at this time.
        In July
        2008, the United States District Court for the District of Connecticut dismissed
        the Consolidated Federal Suit and entered judgment in favor of our company
        and
        the individual defendants. In August 2008, the plaintiffs in the Consolidated
        Federal Suit appealed the dismissal to the United States Second Circuit Court
        of
        Appeals. Our company and the individual defendants in the Consolidated Federal
        Suit cross-appealed one aspect of the District Court’s ruling related to the
        lack of findings that the plaintiffs complied with applicable law. Neither
        the
        outcome of the appeals nor the final outcome of the matter can be predicted
        at
        this time.
  **Item
        1A. Risk Factors**
  Other
        than the introduction of the following risk factor, and the new risk factor
        included in Item 1A, Risk Factors, of our Form 10-Q filed for the period
        ended
        June 30, 2008, there have been no material changes during the nine months
        ended
        September 30, 2008 with respect to the Risk Factors described in Part I,
        Item
        1A, Risk Factors, included in our 2007 Form 10-K.
  ***A
        decline in revenues resulting from current market volatility and conditions
        could have a material adverse effect on our business
        profitability.***
  During
        the third quarter of 2008, the global securities markets experienced historical
        levels of volatility and market movement. These conditions have had a negative
        impact on the financial stability of some of our clients, who are concentrated
        in the financial sector, resulting in accelerated consolidation of brokers
        and
        hedge fund closures.
  Accelerated
        consolidation in the brokerage industry and hedge fund closures could result
        in
        a decline in our subscription and maintenance revenue due to cancellations
        of
        services. In addition, although subscription and maintenance revenues are
        not
        directly affected by trading volumes, to the extent that our clients’ revenues
        are negatively impacted by current market conditions, their ability to purchase
        services and products from us in the future could also be impacted. The current
        financial difficulties affecting many of our clients could also result in
        an
        increased credit risk to our company to the extent that our clients are unable
        to settle their outstanding obligations, including pending trades and billed
        receivables.
  In
        light
        of these conditions, there can be no assurance that overall market trading
        volumes will maintain their current level or grow, which could have a negative
        impact on our transaction revenues. In addition, since a large portion of
        our
        costs are generally fixed, a loss of revenue would negatively affect our
        profitability.
  **Item
        2. Unregistered Sales of Equity Securities and Use of Proceeds**
  Not
        applicable.
  **Item
        3. Defaults Upon Senior Securities**
  Not
        applicable.
  **Item
        4. Submission of Matters to a Vote of Security Holders**
  Not
        applicable.
  **Item
        5. Other Information**
  Not
        applicable.
  Page
            34
  **Item
        6.**  **Exhibits**
  a.)
              Exhibits
  **Exhibit****No.**
                
                **Description
                    of Exhibit***10.1
                
                Employment
                    Agreement dated January 4, 2008 between NYFIX, Inc. and C. Thomas
                    Richardson.*10.2
                
                First
                    Amendment to the Employment Agreement between NYFIX, Inc. and
                    C. Thomas
                    Richardson dated August 29, 2008.*31.1
                
                Certification
                    of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a)
                    of the
                    Securities Exchange Act of 1934, as adopted pursuant to Section
                    302 of the
                    Sarbanes-Oxley Act of 2002.*31.2
                
                Certification
                    of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a)
                    of the
                    Securities Exchange Act of 1934, as adopted pursuant to Section
                    302 of the
                    Sarbanes-Oxley Act of 2002.*32.1
                
                Certification
                    of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                    as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002.*32.2
                
                Certification
                    of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                    as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002.
  
 *
              Filed
                  herewith
  Page
            35
  **Signatures**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
 
 NYFIX, INC.November
                  10, 2008
              /s/ P.
                  Howard EdelsteinP.
                  Howard EdelsteinPresident
                  and
                Chief Executive
                  Officer
 
 November
                  10, 2008
              /s/ Steven
                  R. VigliottiSteven
                  R. VigliottiChief
                  Financial Officer
  Page
            36